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469129
Chapter 4 - Theory of monopoly
Descrição
econ3
Sem etiquetas
economics
econ3
aqa
n/a
Mapa Mental por
usman ahmed
, atualizado more than 1 year ago
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Criado por
usman ahmed
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Resumo de Recurso
Chapter 4 - Theory of monopoly
Source of monopoly power
Patent laws
nationalised industry
Incumbent has exploited economies of scale
High sunk costs
Multiplicity of brands cover all 'gaps in the market'
Essential raw material controlled
Brand loyalty
consumer inertia (do nothing e.g. gas switch)
imperfect knowledge
high barriers to entry
Monopoly pricing
Marginal cost pricing - MC=AR - allocatively efficient
Average cost pricing - AC=AR - normal pi
Monopoly
1:100 concentration ratio
high barriers to entry
Natural
High fixed costs force LRAC to fall continuously
Better in the hands of one firm
high MES
Pure
The higher the MES, the more likely a Monopoly is
Consumer and producer surplus
Monopoly converts some consumer surplus to producer surplus
Dead weight loss
Price Discrimination - Different prices for different consumers for reasons other than costs
Firms cannot be undercut by other rivals(monopoly)
Resale is prevented
At least two different elasticities of demand
Types
First degree
All consumer surplus turned to pi (need to know every consumers preferences perfectly)
Second degree
Different blocks of consumption receive different prices - bulk buying discount
Third degree
Two markets, elastic D lower price, inelastic D higher price, combined in between
LRAC and MC constant in these markets(is ignored)
Dimensions of P.D.
Geographical - car prices higher in UK than Europe mainland
Time - peak prices
Age - Child bus tickets cheaper
Consequences
price discriminator
Higher output than operating at single price = economies of scale, which leads to lower prices
Previous good/service not able to be provided due to loss can now be provided, show with AC and AR curves
consumer
Some consumers pay less than others. but some pay more
first degree = total loss of consumer surplus/welfare
MARKET FAILURE & EVALUATION
market failure as there is a dead weight loss, also called allocative inefficiency
BUT dynamically efficient even though not statically
Dynamic efficiency in monopoly compared with perfect competition - MC falls so price also falls
By restricting output gains from economies of scale are lost
consumer faces lack of choice and can be exploited because the firm is a price maker BUT pi can be reinvested to improve quality + lower cost=price
how do small firms survive
niche market
quality of service
innovation
internet
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