Monopoly Flashcards
What are the characteristics of a monopoly?
No substitute product
Complete market power
High barriers to entry
Maximises supernormal profit
Single seller
Prevents any competition
What is a working monopoly?
When a firm has more than 25% of the industry
What is a dominant monopoly?
When a firm has at least 40% market share
What is price discrimination?
It is when a business charges a different consumers a different price
Why do firms price discriminate?
To increase revenue
To increase profits
Generate cash flow
Increase market share
What is 3rd degree discrimination?
Changing prices to group of consumers by PED, YED, age, sex
What conditions do firms need to meet to price discriminate?
Have sufficient market power
Identifying different market segments
Ability to separate different groups
What are some evaluation points for price discrimination?
Higher prices may lead to loss of consumer surplus
Can increase regional inequality
There might be an increase in transaction costs or red tape
What are some possible advantages for price discrimination?
Lower prices for some groups of consumer
More profits for the business can lead to higher dividends
More profits can lead to reinvestment
What are some advantages for monopoly power?
Profits can be used to fund investment and research
Natural monopoly allows for EOS
Domestic monopoly business can face global competition
Monopolistic firms can be regulated
What are some evaluation points for monopoly power?
Contestability - the threat of a new firm entering can be a powerful influence of the monopoly
Natural monopoly - It might be more productively efficient to have a monopoly supplier
