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Lecture 25

ECON101 Lecture 25: Week 10 / Mar 22 - Policy towards monopolies, Price Discrimination, Monopolistic Competition

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Gordon Lee

Week 10/ March 22, 2017 Check question 12 (1.91 & -0.24 important #s), 15, 23, 25 (squash graph) midterm 1. Policy towards monopolies 2. Price Discrimination 3. Monopolistic Competition • Reading: Chapter 12 POLICIES 1. Competition Act = control behaviour 2. Price Regulation = set the price that the monopolist can change or change the price ceiling a.) First Best Solution force the monopolist to charge the competition price & produce the competitive output Force the monopolist to charge Pc DWL = 0 Problems: i) Regulators does not know MC ii) Forcing the monopolist to produce where P=MC, may force the monopolist to incur a loss b) Second Best Solution force the monopolist to produce where the demand curve intersects ATC & charge the associated price π = 0 - Fair Rate of Returning Pricing 3. Nationalize *Eminent Domain = = govt assumes ownership govt has the right to = govt may not maximize profits but maximizes social welfare take your property if = inefficient it's for the good of the public 4. Induce Competition = govt subsidies to potential competitors PRICE DISCRIMINATION occurs where different consumers are charged different prices for the same good or service where the differences in price are not explained by differences in MC. (ie: local & int'l students are receiving the same education, yet they are charged differently in tuition) three types of price discrimination: 1) First
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