Monopolio Ch14

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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.

Fernando & Yvonn

Quijano

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Chapter

14

Monopoly and

Antitrust Policy



Chap© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 2 of 32

1 Government blocks the entry of more than one firm into a market.

2 One firm has control of a key resource necessary to produce a

good.

3 There are important network externalities in supplying the good or

service.

4 Economies of scale are so large that one firm has a natural

monopoly .

Where Do Monopolies Come From?

Learning Objective 14.2

To have a monopoly, barriers to entering the market must be so high that no

other firms can enter.

Barriers to entry may be high enough to keep out competing firms for four main reasons:

Is Any Firm Ever Really a Monopoly?

Monopoly A firm that is the only seller of a good

or service that does not have a close substitute.




1 By granting a patent or copyright to an

individual or firm, giving it the exclusive rightto produce a product.

2 By granting a firm a public franchise, making it

the exclusive legal provider of a good or

service.



Entry Blocked by Government Action

In the United States, government blocks entry in two

main ways:






Entry Blocked by Government Action

Patents and Copyrights

Patent The exclusive right to a product for a

period of 20 years from the date the product

is invented.

Copyright A government-granted exclusive

right to produce and sell a creation.

Public Franchises

Public franchise A designation by the

government that a firm is the only legal provider

of a good or service.






Control of a Key Resource

Another way for a firm to become a

monopoly is by controlling a key resource.

Network Externalities

Network externalities The situation where theusefulness of a product increases with the

number of consumers who use it.

Natural monopoly A situation in whicheconomies of scale are so large that one firm

can supply the entire market at a lower

average total cost than can two or more firms.

Natural Monopoly





FIGURE 14-1

Average Total Cost Curve

for a Natural Monopoly


Natural Monopoly




How Does a Monopoly Choose Price and Output?


Marginal Revenue Once Again

FIGURE 14-2

Calculating a Monopoly’s

Revenue




How Does a Monopoly Choose Price and Output?


Profit Maximization for a Monopolist

FIGURE 14-3

Profit-Maximizing Price and Output for a Monopoly





FIGURE 14-4

What Happens If a Perfectly Competitive

Industry Becomes a Monopoly?

Does Monopoly Reduce Economic Efficiency?

Comparing Monopoly and Perfect Competition





FIGURE 14-5

The Inefficiency of Monopoly


Measuring the Efficiency Losses from Monopoly





1 Monopoly causes a reduction in consumer

surplus.

2 Monopoly causes an increase in producer

surplus.

3 Monopoly causes a deadweight loss, whichrepresents a reduction in economic efficiency.


Measuring the Efficiency Losses from Monopoly

We can summarize the effects of monopoly as follows:



Chap© 2008 Prentice Hall Business Publishing Economics R Glenn Hubbard Anthony Patrick O’Brien 2e 12 of 32


Market power The ability of a firm to charge

a price greater than marginal cost.

Market Power and Technological ChangeThe introduction of new products requires

firms to spend funds on research and

development.

Because firms with market power are morelikely to earn economic profits than are

perfectly competitive firms, they are also more

likely to carry out research and development

and introduce new products.


How Large Are the Efficiency Losses Due to Monopoly?

Monopolio Ch14

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