Economics 2010 Lecture 13 Monopoly. Monopoly How monopoly arises Single price monopoly.
Why do monopoly markets exist?(11.6) Natural monopoly Barriers to entry.
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Transcript of Why do monopoly markets exist?(11.6) Natural monopoly Barriers to entry.
Natural monopoly
• High fixed costs
• Average cost decreases with output: economies of scale
• Low demand
FIGURE 11-17 Natural Monopoly Market
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-17
Barrier to entry
• Structural barriers to entry :
1. natural monopoly
2. Network externalities : eBay vs Yahoo
In Taiwan : Yahoo ! Vs 露天市集
Barriers to entry (II)
• Legal barriers to entry: patent
• Strategic barriers to entry :
when an incumbent firm takes explicit steps to deter entry : (price war)
FIGURE 11-1 The Monopolist’s Demand Curve is theMarket Demand Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-01
Monopolist’s problem
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FIGURE 11-2 Profit Maximization by a Monopolist
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-02
(Figure continues on next slide)
FIGURE 11-2 (Continued)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-02 continued
FIGURE 11-3 The Change in Total Revenue When the Monopolist Increases Output
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-03
FIGURE 11-4 Total, Average, and Marginal Revenue
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-04
(Figure continues on next slide)
FIGURE 11-4 (Continued)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-04 continued
FIGURE 11-5 The Monopolist’s Profit-Maximization Condition
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-05
A monopolist does not have a supply curve
• The monopolist might sell the same quantity at different prices
FIGURE 11-6 The Monopolist Does Not Have a Supply Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-06
11.2Elasticity and marginal revenue
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FIGURE 11-7 How Price Elasticity of Demand AffectsMonopoly Pricing
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-07
FIGURE 11-8 Marginal Revenue and Price Elasticity of Demand for a Linear Demand Curve (P=a-b Q)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-08
FIGURE 11-9 Why a Profit-Maximizing Monopolist Will Not Operate on the Inelastic Region of the Market Demand Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-09
Inverse elasticity pricing rule (IEPR)
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Quantifying market power
• Market power: The power of an individual economic agent to affect the price
• Lerner Index of market power
0 < (P-MC)/P <1• Why ?• (P-MC)/P relates to elasticity • Elasticity indicates the degree of substitutes• 彈性大 : 替代性高 , 欠缺 market power
FIGURE 11-14 Profit Maximization by a Multiplant Monopolist
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-14
FIGURE 11-15 Profit Maximization by a Cartel
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-15
FIGURE 11-16 Deadweight Loss in a Monopoly
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-16
FIGURE 11-18 The Monopoly Equilibrium
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-18