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