Transcript Price
Chapter 9 Monopoly and Monopsony Key Concepts monopoly price maker Barriers to entry deadweight loss natural monopoly patent monopsony Price discrimination bilateral monopoly antitrust law Overview 一. Definition and features of monopoly 二.Barriers to entry 三.Profit Maximization 四.Social Costs of Monopoly 五.Social Benefits From Monopoly 六.Monopoly Regulation 七. Antitrust Policy Learning objectives Why some markets have only one seller. How a monopoly determines the quantity to produce and the price to charge. How the monopoly’s decisions affect economic well-being. The various public policies aimed at solving the problem of monopoly. Why monopolies try to charge different prices to different customers. 一. Definition and Features of monopoly Definition monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. Features of monopoly Sole seller Unique product Blocked entry Imperfect information LR economic profits Why monopolies arise? No! Stop!!! barriers to entry 二.Entry barriers Control of inputs Economies of scale Patents license Control of inputs De Beers Economies of scale natural monopoly: when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. Figure Economies of Scale as a Cause of Monopoly Cost Average total cost 0 Quantity of Output Patents or license Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets. 三.Profit Maximization in Monopoly Markets To review Perfect competition Figure Demand Curves for Competitive and Monopoly Firms (a) A Competitive Firm’ s Demand Curve Price (b) A Monopolist’ s Demand Curve Price Demand Demand 0 Quantity of Output 0 Quantity of Output To fill in the blanks; P to draw demand, MR, AR and TR curve 6 Q TR AR MR 0 0 5 1 5 5 5 4 2 8 4 3 3 3 9 3 1 2 4 8 2 -1 1 5 5 1 -3 Steps to determine profit-maximizing output, price, and economic profit Step 1. MR=MC →optimal Q* Step 2. vertical line to the demand curve → optimal P* Step 3. Economic profit Method 1: (P- ATC) ×Q* Method 2: P*Q*﹣ATC×Q* 四. Social Costs of Monopoly Monopoly Underproduction too little output. too high prices Deadweight Loss a loss in social welfare a wealth transfer problem consumer surplus producer surplus Figure welfare in competitive market Price A D Supply Consumer surplus Equilibrium price E Producer surplus B Demand C 0 Equilibrium quantity Quantity Monopoly versus perfect competition Price Deadweight loss Marginal cost Pm Pcm Marginal revenue 0 Monopoly Efficient quantity quantity Demand Quantity Competitive market equilibrium Qs=-40+4P→ P=10+0.25Qs Qd=170-2P→ P=85-0.5Qd Qd=Qs Solution: Pe=35 Qe=100 Figure Consumer and Producer Surplus in the Market Equilibrium Price Supply Pe=35 Demand Quantity 0 Qe=100 Monopoly: Qs=-40+4P→ P=10+0.25Qs Qd=170-2P→ P=85-0.5Qd 2 P=85-0.5Qd →TR=85Q-0.5Q ∴MR=85-Q MR=MC 85-Q=10+0.25Q ∴Qm=60 Pm=85-0.5Q=55 Figure monopoly output and price Price Pm= 55 Supply Demand 0 Qm=60 Quantity Figure monopoly versus perfect competition Price Pm= 55 A Supply 35 25 D B C Demand 0 Qm=60 100 Quantity Consumer Deadweight loss: 1/2(55-35)(100-60) =400 Producer deadweight loss: ½( 30-25) (100-60)=200 Wealth transfer to producer: (55-35) ×60 六.Social Benefits From Monopoly Economies of Scale/natural monopoly Invention and Innovation 七. Monopoly Regulation Dilemma of Natural Monopoly Monopoly has the potential for efficiency. Unregulated monopoly can lead to economic profits and underproduction. (a) socially optimal (marginal-cost) pricing and b) fair-return (average-total-cost) pricing. What s the “dilemma of regulation?” Antitrust laws give government various ways to promote competition. They allow government to prevent mergers. They allow government to break up companies. They prevent companies from performing activities that make markets less competitive. Two Important Antitrust Laws Sherman Antitrust Act (1890) Sherman Act forbids restraints of trade and “monopolizing.” Clayton Act (1914) Clayton Act focuses on mergers, interlocking directorates, price discrimination, and tying contracts. Microsoft Case ”bundling” charge Internet software Windows operating system 中华人民共和国反垄断法 2007.8.30通过 2008.8.1施行 目 录 第一章 总 第二章 垄断协议 第三章 滥用市场支配地位 第四章 经营者集中 第五章 滥用行政权力排除、限制竞争 第六章 对涉嫌垄断行为的调查 则 第七章 法律责任 第八章 附 则 True or false The sole producer of a good can charge whatever price it wants. For monopoly to exist, entry barriers must exist. When a demand curve slopes down, marginal revenue is always less than price. Marginal revenue equals zero when the demand curve has an elasticity of one. Monopolies always earn economic profits. For the same demand and cost conditions, price is higher and output is lower under monopoly than under perfect competition.