ECN 101 Chapter Notes - Chapter 11: Network Effect, Price Discrimination, Monopoly
28 May 2018
School
Department
Course
Professor
Chapter 11
ECN 101
November 9
Monopoly
•Single seller - a sole producer, no other seller has the same product
•No close substitutes - unique product
•Price-maker - control over price
•Blocked entry - strong barriers to entry block potential competition
•nonprime competition - mostly PR or advertising the product. Product may
be standardized (natural gas) or differentiated (windows operating
Examples of monopoly -
1. Public utility companies (natural gas utilities; electric utilities, water utilities)
2. Near monopolies (intel 80-85% of the central microprocessors, windows -
90% of the desktops)
3. Professional Sports Teams
4. There are substitutes for the above, but either more costly or less appealing
Barriers to entry: the factors that keep firms from entering an industry:
1. Economies of scale: lower per un it costs keep competitors out
2. Legal Barriers: Patents and Licenses (in ontario only gov can sell liquor
3. Ownership of Essential Resources
4. Pricing and Other Strategic Barriers to Entry
•The monopolist is the industry
•Demand curve if the market demand curve (down sloping curve)
•Marginal revenue
Misconceptions of monopoly pricing:
-not the highest price - will not charge the highest possible price
-total, not unit, profit - seeks to maximized total, not unit profit. And as price
rises the Q it can sell falls
-possibility of losses - not immune to a fall in demand i.e. due to a change in
tastes: or to increasing factor prices
-Monopolist will not operate at a loss in the long run
Monopoly and Deadweight Loss - the net loss of consumer surplus and
producer surplus
Under Monopoly
Simultaneous consumption - a product’s ability to satisfy a large number of
consumers at the same time
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Product may be standardized (natural gas) or differentiated (windows operating. Examples of monopoly : public utility companies (natural gas utilities; electric utilities, water utilities, near monopolies (intel 80-85% of the central microprocessors, windows - 90% of the desktops: professional sports teams, there are substitutes for the above, but either more costly or less appealing. Not the highest price - will not charge the highest possible price. Total, not unit, pro t - seeks to maximized total, not unit pro t. And as price rises the q it can sell falls. Possibility of losses - not immune to a fall in demand i. e. due to a change in tastes: or to increasing factor prices. Monopolist will not operate at a loss in the long run. Monopoly and deadweight loss - the net loss of consumer surplus and producer surplus. Simultaneous consumption - a product"s ability to satisfy a large number of consumers at the same time.
