Monopoly

Question 0

Tell me about substitution

Answer 0

There are no close substitutions!

Therefore, there is a degree of market power

Question 1

Who dominates the market?

Answer 1

One firm dominates the market

Question 2

Tell me about barriers to entry

Answer 2

• Sole ownership of a natural resource
• Created by the state? Privatisation? (eg, British Rail)
• Patented or copyrighted
• Economies of scale

The monopolist doesn’t have to worry about new entrants as there are significant barriers to entry

Question 3

Is a monopolist a price setter?

Answer 3

The monopolist is the price setter.

They’re also able to price discriminate.

Question 4

What is price discrimination?

Answer 4

1st degree - Charging the consumer the absolute most they’re willing to pay.

3rd degree - Charging different prices depending on the market segment (eg, age, income group, time of use or booking)

Question 5

What are the advantages of a monopoly?

Answer 5

• The firm benefits from economies of scale (the monopolists costs will be low)
• The supernormal profits can be invested into further research or development

Question 6

What are the disadvantages of a monopoly?

Answer 6

• Against public interest

- Barriers to entry mean there is reduced competition

Question 7

How do the firms compete?

Answer 7

They don’t need to… It’s a monopoly, dick head!