Ch12 Monopoly and Antitrust Policy

7/25/2019 Ch12 Monopoly and Antitrust Policy

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2002 Prentice Hall Business Publishing 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ra !airKarl Case, Ra !air

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CHAP

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Prepared by: FernandoPrepared by: Fernando

Quijano and Yvonn QuijanoQuijano and Yvonn Quijano

Monopoly and Antitrust PolicyMonopoly and Antitrust Policy


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#mperfect Competition#mperfect Competition

an$ %ar&et Po'eran$ %ar&et Po'er

( )n)n imperfectly competitive industryimperfectly competitive industryisis

an in$ustr in 'hich single firms ha*ean in$ustr in 'hich single firms ha*e

some control o*er the price of their output+some control o*er the price of their output+

( Market powerMarket poweris the imperfectlis the imperfectl

competiti*e firms abilit to raise pricecompetiti*e firms abilit to raise price

'ithout losing all $eman$ for its pro$uct+'ithout losing all $eman$ for its pro$uct+


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-efining #n$ustr Boun$aries-efining #n$ustr Boun$aries

( .he ease 'ith 'hich consumers can.he ease 'ith 'hich consumers can

substitute for a pro$uct limits the etent tosubstitute for a pro$uct limits the etent to

'hich a monopolist can eercise mar&et'hich a monopolist can eercise mar&et

po'er+po'er+

( .he more broa$l a mar&et is $efine$, the.he more broa$l a mar&et is $efine$, the

more $ifficult it becomes to fin$more $ifficult it becomes to fin$

substitutes+substitutes+


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Pure %onopolPure %onopol

( ))pure monopolypure monopolyis an in$ustr 'ith ais an in$ustr 'ith a

single firm that pro$uces a pro$uct forsingle firm that pro$uces a pro$uct for

'hich there are no close substitutes an$ in'hich there are no close substitutes an$ in

'hich significant barriers to entr pre*ent'hich significant barriers to entr pre*entother firms from entering the in$ustr toother firms from entering the in$ustr to

compete for profits+compete for profits+


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Barriers to EntrBarriers to Entr

( .hings that pre*ent ne' firms from.hings that pre*ent ne' firms from

entering an$ competing in imperfectlentering an$ competing in imperfectl

competiti*e in$ustries inclu$ecompetiti*e in$ustries inclu$e

( Government franchisesGovernment franchises, or firms that, or firms that

become monopolies b *irtue of abecome monopolies b *irtue of a

go*ernment $irecti*e+go*ernment $irecti*e+


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( PatentsPatentsor barriers that grant the eclusi*eor barriers that grant the eclusi*e

use of the patente$ pro$uct or process touse of the patente$ pro$uct or process to

the in*entor+the in*entor+


7/16 2002 Prentice Hall Business Publishing 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ra !airKarl Case, Ra !air





( Economies of scale and other costEconomies of scale and other cost

advantagesadvantagesen1oe$ b in$ustries thaten1oe$ b in$ustries that

ha*e large capital reuirements+ ) largeha*e large capital reuirements+ ) large

initial in*estment, or the nee$ to embar& ininitial in*estment, or the nee$ to embar& inan epensi*e a$*ertising campaign, $eteran epensi*e a$*ertising campaign, $eter

'oul$3be entrants to the in$ustr+'oul$3be entrants to the in$ustr+







( Ownership of a scarce factor ofOwnership of a scarce factor of

production:production: #f pro$uction reuires a#f pro$uction reuires a

particular input, an$ one firm o'ns theparticular input, an$ one firm o'ns the

entire suppl of that input, that firm 'illentire suppl of that input, that firm 'illcontrol the in$ustr+control the in$ustr+



Price .he !ourth -ecision 4ariablePrice .he !ourth -ecision 4ariable

( !irms 'ith mar&et po'er must $eci$e!irms 'ith mar&et po'er must $eci$e

"+"+ ho' much to pro$uce,ho' much to pro$uce,

2+2+ ho' to pro$uce it,ho' to pro$uce it,

5+5+ ho' much to $eman$ in each inputho' much to $eman$ in each input

mar&et, an$mar&et, an$

4.4. what price to charge for their output.what price to charge for their output.



Price an$ utput -ecisions in PurePrice an$ utput -ecisions in Pure

%onopol %ar&ets%onopol %ar&ets

( .o anal7e monopol beha*ior 'e assume.o anal7e monopol beha*ior 'e assume

thatthat

( Entr to the mar&et is bloc&e$Entr to the mar&et is bloc&e$( !irms act to maimi7e profit!irms act to maimi7e profit

( .he pure monopolist bus in competiti*e input.he pure monopolist bus in competiti*e input

mar&etsmar&ets

( .he monopolistic firm cannot price $iscriminate.he monopolistic firm cannot price $iscriminate

( .he monopol faces a &no'n $eman$ cur*e.he monopol faces a &no'n $eman$ cur*e



Price an$ utput -ecisions in PurePrice an$ utput -ecisions in Pure

%onopol %ar&ets%onopol %ar&ets

( 8ith one firm in a monopol mar&et, there8ith one firm in a monopol mar&et, there

is no $istinction bet'een the firm an$ theis no $istinction bet'een the firm an$ the

in$ustr+ #n a monopol, the firm is thein$ustr+ #n a monopol, the firm is the

in$ustr+in$ustr+

( .he mar&et $eman$ cur*e is the $eman$.he mar&et $eman$ cur*e is the $eman$

cur*e facing the firm, an$ total uantitcur*e facing the firm, an$ total uantit

supplie$ in the mar&et is 'hat the firmsupplie$ in the mar&et is 'hat the firm$eci$es to pro$uce+$eci$es to pro$uce+



Collusion an$ %onopol Compare$Collusion an$ %onopol Compare$

( CollusionCollusionis the act of 'or&ing 'ith otheris the act of 'or&ing 'ith other

pro$ucers in an effort to limit competitionpro$ucers in an effort to limit competition

an$ increase 1oint profits+an$ increase 1oint profits+

( 8hen firms collu$e, the outcome 'oul$ be8hen firms collu$e, the outcome 'oul$ be

eactl the same as the outcome of aeactl the same as the outcome of a

monopol in the in$ustr+monopol in the in$ustr+



Public Choice .heorPublic Choice .heor

( .he i$ea of go*ernment failure is at the.he i$ea of go*ernment failure is at the

center ofcenter ofpulic choice theorypulic choice theory, 'hich, 'hich

hol$s that public officials 'ho sethol$s that public officials 'ho set

economic policies an$ regulate the plaerseconomic policies an$ regulate the plaersact in their o'n self3interest, 1ust as firmsact in their o'n self3interest, 1ust as firms

$o+$o+



Reme$ies for %onopolReme$ies for %onopol

)ntitrust Polic)ntitrust Polic

( )) trusttrustis an arrangement in 'hichis an arrangement in 'hich

sharehol$ers of in$epen$ent firms agreesharehol$ers of in$epen$ent firms agree

to gi*e up their stoc& in echange for trustto gi*e up their stoc& in echange for trust

certificates that entitle them to a share ofcertificates that entitle them to a share ofthe trusts common profits+ ) group ofthe trusts common profits+ ) group of

trustees then operates the trust as atrustees then operates the trust as a

monopol, controlling output an$ settingmonopol, controlling output an$ setting

price+price+



9an$mar& )ntitrust 9egislation9an$mar& )ntitrust 9egislation

( Congress began to formulate antitrustCongress began to formulate antitrustlegislation in "::;, 'hen it create$ thelegislation in "::;, 'hen it create$ the!nterstate Commerce Commission "!CC#!nterstate Commerce Commission "!CC#

to o*ersee an$ correct abuses in theto o*ersee an$ correct abuses in therailroa$ in$ustr+railroa$ in$ustr+

( #n ":


16/16 2002 Prentice Hall Business Publishing 2002 Prentice Hall Business Publishing Principles of Economics 6/ePrinciples of Economics 6/e Karl Case Ra !airKarl Case Ra !air

>atural %onopol>atural %onopol

( )) natural monopolynatural monopolyis anis an

in$ustr that reali7es suchin$ustr that reali7es such

large economies of scale inlarge economies of scale inpro$ucing its pro$uct thatpro$ucing its pro$uct that

single3firm pro$uction of thatsingle3firm pro$uction of that

goo$ or ser*ice is mostgoo$ or ser*ice is most

efficient+efficient+

Ch12 Monopoly and Antitrust Policy

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