MGCR 293 Chapter Notes - Chapter 8: Product Differentiation, Monopoly Price, Market Power
19 Sep 2017
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Understand the behaviour of rm with market power (=ability of a rm to raise price without losing all its sales. Market power pc rms which face a market determined price + not able to sell anything if they raised price. All rms except pc have some market power. Firms with market power downward sloping demand for products they sell. Rms w/ market power raise price: even thought sales do not fall to 0 , sales decrease bc of law of demand. Monopoly: rm that produces a good for which there are no close substitutes in a market that other rms are prevented from entering because of a barrier to entry. Determinant of market power = strong barrier entry such as: Input barrier own all the resources to create a product (diamond) Consumer lock in switching cost very high. The manager of a monopoly treats the market demand curve as the rm"s demand curve + wish to maximize pro t.
