MONOPOLIES

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MONOPOLIES

one firm

barriers to entry

produces ONLY one product

price makers

little to no advertising

MONOPOLY RESOURCES

ex: owning the only well in town

GOVERNMENT- GRANTED MONOPOLIES

ex: patents and copyright law

ECONOMIC BARRIERS = NATURAL MONOPOLIES

ex: Google as dominant search provider

1. LARGE INITIAL FIXED COSTSpharmaceutical firms= research and development

2. ECONOMIES OF SCALE

hospitals

3. NETWORK EFFECTS

Facebook vs. Google+

MONOPOLY PROFIT

monopolies earn a long-run profit because of the monopolies barriers of entry

WHY DEADWEIGHT LOSS?

firm sells goods at lower prices to sell more of that product

DETERMINING THE MONOPOLIST'S MARKET POWER

price elasticity of demand

CONCENTRATION

firm control output and pricing decisions

squares of the market (percentage ) of the firms in an industry

EX: firm 1: 90% firm 2: 10%

What's the HHI? 90^2 + 10^2 = 8100 + 100 = 8200

PRICE DISCRIMINATION

resale must be limited, "fencing" or limited number of a good being bought

3 degrees: 1st degree "perfect"- paying max price; 2nd degree "bulk"- buyer pays(spending ), varies; 3rd degree "segmented" - prices vary for the same good