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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Fernando & Yvonn
Quijano
Prepared by:
Chapter
14
Monopoly and
Antitrust Policy
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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.
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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.
Where Do Monopolies Come From?
Learning Objective 14.2
Entry Blocked by Government Action
In the United States, government blocks entry in two
main ways:
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Where Do Monopolies Come From?
Learning Objective 14.2
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.
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Where Do Monopolies Come From?
Learning Objective 14.2
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
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Learning Objective 14.2
FIGURE 14-1
Average Total Cost Curve
for a Natural Monopoly
Where Do Monopolies Come From?
Natural Monopoly
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How Does a Monopoly Choose Price and Output?
Learning Objective 14.3
Marginal Revenue Once Again
FIGURE 14-2
Calculating a Monopoly’s
Revenue
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How Does a Monopoly Choose Price and Output?
Learning Objective 14.3
Profit Maximization for a Monopolist
FIGURE 14-3
Profit-Maximizing Price and Output for a Monopoly
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Learning Objective 14.4
FIGURE 14-4
What Happens If a Perfectly Competitive
Industry Becomes a Monopoly?
Does Monopoly Reduce Economic Efficiency?
Comparing Monopoly and Perfect Competition
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Learning Objective 14.4
FIGURE 14-5
The Inefficiency of Monopoly
Does Monopoly Reduce Economic Efficiency?
Measuring the Efficiency Losses from Monopoly
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Learning Objective 14.4
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.
Does Monopoly Reduce Economic Efficiency?
Measuring the Efficiency Losses from Monopoly
We can summarize the effects of monopoly as follows:
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Learning Objective 14.4
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.
Does Monopoly Reduce Economic Efficiency?
How Large Are the Efficiency Losses Due to Monopoly?