Market Structure and the Behavior of Firms Perfect Competition vs Monopoly.
Monopoly Market structure
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MONOPOLY
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IntroductionMONO = means “One” +POLY = means “ Sell”
One Seller/ One Producer
• Monopoly is the polar opposite of perfect competition.
• Monopoly is a market structure in which a single firm makes up the entire market. 2
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Definition Of Monopoly• According to PROF. CHAMBERLAIN,” Monopoly refers to
the control over supply.”
• According to PROF.ROBERT TRIFFIN ,”Monopoly is a market situation in which the firm is independent of price changes in the product of each and every other firm.”
PROF. CHAMBERLAIN
PROF.ROBERT TRIFFIN 3
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Monopoly
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Why Monopolies Arise?
• The fundamental cause of monopoly is the existence of barriers to entry.
• Monopolies exist because of barriers to entry into a market that prevent competition-• Legal barriers• Sociological barriers • Natural barriers
• Barriers to entry have three sources-• Ownership of a key resource.• The government gives a firm the exclusive right to produce some good.• Costs of production make one producer more efficient than a large number of
producers.
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Characteristics of monopoly
Single seller
No close substitutes
Barriers to entry
Non- price competition
Price maker
Downward sloping demand
curve
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Types of Monopolies
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Perfect Monopoly
Imperfect Monopoly
Private Monopoly
Public Monopoly
Simple Monopoly
Discriminating Monopoly
Legal Monopoly
Natural Monopoly
Technological Monopoly
Joint Monopoly
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Demerits of monopoly• Consumer options are limited.• Profits do not signal firms to enter the industry. (They can’t get in
because of the barriers to entry.)• There is allocate inefficiency. ( P > MC ) The monopolist does not
produce all units that consumers value more than it costs to make them.
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Monopoly Market Demand Curve
Price
QuantityDemand
Because the monopoly firm is the only seller of a good, the market demand curve for the good is the same as the demand curve for the firm’s product.
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Perfect Competition vs. Monopoly
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Governments Role in Monopoly
• Prevent Excess Price• Regulation of quality of service• Merger Policy• Breaking up a monopoly• Investigation of Abuse of Monopoly Power
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Price Discrimination
• Price discrimination is the ability to charge different prices to different individuals or groups of individuals.
• A price-discriminating monopolist can increase both output and profit.
• It can charge customers with more inelastic demands a higher price.
• It can charge customers with more elastic demands a lower price.
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The Early Bird Gets a Lower Price
• Early Bird Specials—Restaurants charge special, lower prices for early diners.
• Matinees—Theaters charge less for earlier shows.
• Air Fares—Airlines charge less for flyers willing to fly “off peak,” i.e. early morning and late night.
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Case Study
• TATA NANO• Monopoly in the lower economic segment• TATA, the only seller • No close substitutes for Nano in the market• Barriers to entry in the market(capital requirement,
technology, etc.)
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Summary• A monopoly is a firm that is the sole seller in its market.• It faces a downward-sloping demand curve for its product.• A monopoly’s marginal revenue is always below the price of its
good.• Like a competitive firm, a monopoly maximizes profit by
producing the quantity at which marginal cost and marginal revenue are equal.
• Unlike a competitive firm, its price exceeds its marginal revenue, so its price exceeds marginal cost.
• A monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus.
• Monopolists can raise their profits by charging different prices to different buyers based on their willingness to pay.
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Thank You
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