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Monopolies

Monopolies. Monopolies. Single supplier for a good or service Barriers exist for entry into market for firms DeBeers-diamonds Problem- monopolies can charge high $$$ and take advantage of consumers United States has outlawed/regulated monoploies. Forming a monopoly.

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Monopolies

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  1. Monopolies

  2. Monopolies • Single supplier for a good or service • Barriers exist for entry into market for firms • DeBeers-diamonds • Problem- monopolies can charge high $$$ and take advantage of consumers • United States has outlawed/regulated monoploies

  3. Forming a monopoly • Single seller in market- but there are different types of monopolies • Economies of scale- start up costs high, but average cost fall with each new unit produced • Figure 7.3 compares economies of scale • Example- hydroelectric plant • Start up- a dam- very expensive • Average cost will dissipate over time

  4. Natural monopolies • A market where one firm is most efficient for industry • Competition would drive 2 firms out of market because of lack of profit • Public Water works-pipes, work, quality • Government regulation on utilities • Natural monopolies agree to govt oversight • Technology can change- cell phones- no wires

  5. Government monopolies • A monopoly created by government • Patents- exclusive rights to a good or service • Book- Leland pharmaceuticals develops asthma medicine- get a 20 year patent • Guarantees company opportunity to profit from their own research- R&D in companies • Franchise- contract issued by local authority allowing single firm exclusive rights- ATL

  6. monopolies • Licensing- government requires a license into market- radio, television, parking • Industrial organizations- MLB, NFL, NHL, NBA • Allows efficiency of industry • Also allows owners opportunity to abuse with prices etc,,, • Oakland Raiders • LA- back to Oakland- new stadium , etc

  7. Output decisions • Monopolies- usually produce fewer good at charge higher prices • React differently to perfectly competitive markets • Reason- falling marginal revenue. • Keep prices high and supply low. ALL CONSUMERS CHARGED SAME PRICE. • Seems unfair- but it is how the company can continue to produce good – incentive

  8. Price discrimination • When monopolists divide customers into categories and charge different prices. • Sets price high- sells only to few • Set price low- popular but limited profit • Market Power-ability to control prices and and total market output. • Price discrimination examples- discounted airfare, manufacturer’s rebates, senior/student discount, child fly, eat stay free

  9. Limits on price discrimination • Must have 3 conditions • 1. Firms must have control over price- usually rare in highly competitive markets • 2. Distinct customer groups- guess the price curve and elasticity for these groups • 3. Difficult resale- goods usually consume on the spot . • Some feel price discrimination is wrong

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