Notes
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
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- -3 characteristics and 2 behaviors of Monopolies -barriers to entry w/ examples -long-run profit for monopolies -deadweight loss -monopolist's market power -concentration -price discrimination/ degrees of price discrimination
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