ECO 3139 Lecture Notes - Lecture 8: Sunk Costs, Natural Monopoly, Externality
13 Mar 2018
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Document Summary
Absolute entry implies that y a potential entrant enters the market and charge a price below the incumbent"s price, then the entrant will completely displace the incumbent. Is no sunk cost associable with entry => an entrant enters the market, makes some pro t and leaves the industry. We now show that a natural monopoly is a contestable market. Monopoly makes pro t => attracts entry. qb a potential entry occurs; the entrant can charge a price < pm and still makes pro t. In certain types of markets for goods, competitive equilibrium does not exist, i. e. ; market system fails. The type of industries - network industries - leads to market failure. Many industries have characteristics that fall under network industries. Telephone, cellphones, computerized airline booking systems, multiple real estate listings. 4 main characteristics that distinguish network industries from other industries: complementarily, compatibility & standards. Ex: nuts & bolts, shoes, dvd & players, computer & softwares etc.
