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Economics For Managers Essay

2410 words - 10 pages

Week 5: Monopoly and Imperfect  Competition – Part A 
Text References Ch.10 Monopoly & its Regulation pp. 221 – 244   Ch.15 Monopolistic Competition pp. 339 – 356 Ch.16 Oligopoly games and Strategies pp. 357 – 380  




Market Structure 

Perfect  Competition 

Monopolistic  Competition






Market Structure 
Perfect  Competition 
Sell Side  • • Perfect  Competition  • Duopoly • Monopoly • Example  One large seller  controls market  – Telstra in 1990 2 Sellers – Broome Camel  Tours, AMD &  Intel , Qantas &  Ansett

Imperfect  Competition 
Buy Side  • Monopsony  (monopsonist)  • Duopsony (duopsonist) • Example  ...view middle of the document...

e.  Fast Food industry controls  the meat market 

Monopolistic Competition  ‐ sell  side 

Small to  Medium sized  businesses 

Market Power
• Market power and competition are the two forces that  operate in most markets. • Market power is the ability to influence the market,  and in particular the market price, by influencing the  total quantity offered for sale. • A monopoly is an industry that produces a good or  service for which no close substitute exists and in  which there is one supplier that is protected from  competition by barrier/s preventing the entry of new  firms. 


Market Power
How Monopoly arises because: 1. No close substitutes 2. Barriers to entry – Legal, financial, and /or  natural constraints that protect a firm from  potential competitors. 


A Royal Charter – is a Monopoly 
• Royal Charter ‐ letter patent is a  type of legal instrument in the  form of a published written order  issued by a monarch or president,  generally granting an office, right,  monopoly, title, or status to a  person or corporation.    • For example, the College Grote  Visserij which was the largest and  most organized fishery in pre‐ modern Europe.   


Market Power
• Legal barriers to entry create a legal monopoly, a  market in which competition and entry are restricted by  the granting of a:  Monopoly franchise (like Australia Post).  Government license (like a license to practice law  or medicine)  Patent and copyright


Market Power
• Natural barriers to entry create a natural monopoly in  which one firm supplies the entire market at a lower  price than two or more firms can.

– Example: Microsoft’s IE, Electric utility, Water 


Microsoft’s Internet Explorer: Market Dominance  
• Internet Explorer is one of the most  widely used web browsers, attaining a  peak of about 95% usage share during  2002 and 2003. Its usage share has since declined with  the launch of Safari (2003), Firefox  (2004), and Google Chrome (2008),  each of which now have significant  market share.  Estimates for Internet Explorer's overall  market share range from 28.8% to  54.05% as of May (browser market  share is notoriously difficult to  calculate).


Market Dominance


Market Dominance   How much is $850 1908 worth in 2010?


A Monopoly’s Output and Price Decision
• Price  ≠ Marginal Revenue – A monopoly is a Price Maker, not a price taker like a firm  in perfect competition. – The demand curve is downward sloping.  – To sell a larger output a monopoly must set a lower  price and the Monopolists has two curves:   Two Curves:  1. D = AR and  2. A separate MR curve


Demand and Marginal Revenue


Demand = AR ≠ Marginal Revenue
Price & marginal revenue (dollars per haircut)
20 16 14


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