ECON 201 WEEK 7 Finishing Up Monopolies: Natural Monopolies.
Monopolies and oligopolies
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Transcript of Monopolies and oligopolies
Monopolies and Oligopolies
Economics 1
What is a Monopoly?! It forms when others
prevent firms from entering a market that has a single supplier
One seller, but many buyers
Charge high prices They are illegal in
the U.S.!
Natural Monopoly Natural Monopoly-a
market that runs most efficiently when one large firm supplies all of the output
Ex.-Cincinnati Water Works
The Government usually steps in to allow one company to control these types-they control the price that way also!
Technological development can cause a natural monopoly to end
Government Monopoly Obviously created by the government Patents-gives a company exclusive rights
to sell a new good or service for a specific period of time. Guarantees that companies can profit from
their own ideas without competition Encourages development of new products
Franchise-the right to sell a good or service within an exclusive market-Our School!
License-a government issued right to operate a business
Baseball?! Did you know that
Major League Baseball has an exemption from monopoly laws?!
They limit the number and location of teams!
Price Discrimination Division of
customers into groups based on how much they will pay for a good
Discounts for seniors, children, students, etc.
Targeted Discounts Discounted airline
fares Manufacturers’
rebate offers Senior Citizen or
Student Discounts Children fly, eat,
or stay free promotions
Monopolistic Competition A market structure in
which many companies sell products that are similar but not identical
Jeans, bagel stores, ice cream stores, gas stations, etc.
These are Very common!
Four Conditions of Monopolistic Competition Many firms Few artificial barriers to entry
No patents Slight control over price
Generic vs. name brand Differentiated Products
Making a product different from other similar products
Oligopoly A market structure
in which a few large firms dominate a market
High prices and low output
Air travel, breakfast cereals, household appliances
How do they work?! They keep other
companies from competing-patents, etc.
Coke vs. Pepsi vs. ?????????????????
Sometimes oligopolies work together to ban other forms of competition-this can be a monopoly!
Last Slide! Price war- a series of competitive price cuts
that lowers the market price below the cost of production
Collusion- an agreement among firms to divide the market, set prices, or limit production
Price fixing- an agreement among firms to charge one price for the same good
Cartel- a formal organization of producers that agree to coordinate prices and production Illegal in the U.S.!