Transcript Micro Ch 22 presentation 1- characteristics of monopolies

Chapter 22
Pure Monopoly
Pure Monopoly
• 1. Single seller- single producer or supplier of a
good/service
• 2. No close substitutes
• 3. Price Maker- controls price by controlling
supply
• 4. Blocked Entry-economic, technological, legal
• 5. Non-price Competition- Often PR advertising
(standardized)
Monopoly Examples
• Pure monopolies are relatively rare
• Government owned/regulated public
utilities- water company, natural gas,
electric companies, cable
Near Monopolies
• A single firm has the bulk of sales in a
specific market
• Ex- Intel provides 80% of microprocessors
• DeBeers supplies 55% of uncut diamonds
• Professional sports teams (minus NY, LA)
Some Competition
• There is almost always some form of
competition, but substitutes are usually
more expensive or less appealing
Barriers to Entry
• Strong barriers to entry effectively block all
potential competition
• 1. Economies of scale- modern technology
in some industries allow only a few large
firms or one firm to achieve low ATC
• **it is too costly for firms to enter and
compete
• Ex- automobiles, commercial airlines, steel
Barriers to Entry Cont’d
• 2. Legal Barriers to Entry
• A. Patents
• B. Licenses
Patents
• Exclusive rights of an inventor to use, or to
allow another to use, his/her invention
• -last 20 years from the time of application
• -R and D is what leads to most patentable
inventions and products
• Ex- IBM, Pfizer, GE, DuPont
Licenses
• The government can also limit entry into
an industry through licensing
• Ex- FCC only licenses certain radio
stations, cities only allow certain cab
companies to operate, state liquor
agencies, and state lotto
Barriers to Entry Cont’d
• 3. Ownership or Control of Essential
Resources- use private property as an
obstacle to potential rivals
• Ex- International Nickel Co of Canada
once controlled 90% of the world’s known
nickel deposits
• -sand or gravel
• -professional sports stadiums/arenas
Barriers to Entry Cont’d
• 4. Pricing and other strategic barriers
• -confronted with a new firm, a monopolist
might slash prices or beef up advertising
• Ex- Microsoft charged more for operating
systems to companies that used Netscape