Monopolist and Oligopolist CH.13 & CH. 14
Monopolist: A firm that is the only producer of a good
if an industry is controlled by a monopolist it is called a monopoly
A monopolist has market power The ability to raise prices above the competitive level
Oligopolist: A firm that is a producer in an industry with a small number of producers
if an industry is controlled by oligopolies it is called an oligopoly
An oligopoly has market power when competing firms affect the market price this is called
imperfect competition
Why do monopolists exist?
Om geld te verdienen wilt een monopolist zich graag verdedigen tegen toetreders This is done via
A barrier to entry “something” that prevents other firms from entering the market five types
of barriers:
- Control of a scarce resource De Beers monopoly (controle over de mijnen voor
diamanten)
- Increasing returns to scale Reduction of costs per unit as the production increases (gas
bedrijven)
- Technological superiority (competitive zal snel in kunnen halen door investeringen)
- Network externality The value of a good or service is greater for a industry if many others
are using the same good (Facebook meer waard als er meer mensen gebruik van maken)
- Government-created barrier a patent or a copyright (enige die het mag verkopen)
How does a monopolist maximize profit?
Monopolist can set the price as high as he wants, but higher price lower sales, shown by the
demand curve
demand curve of monopolist is the same as the market demand curve because it is the sole supplier.
Marginal revenue = marginal costs Profit maximization
MR=MC
MO=MK
thus when MC crosses MR the profit maximization is realised.
Monopoly versus Perfect Competition
A monopolist drives the price up and decreases the quantity available.
Perfect competition keeps price low and increases the quantity available.
Thus a monopolist does the following:
- Produces lower quantity
- Charges higher prices Market power
- Earns profit
- Changes the CS to be much lower
, To calculate profit Total revenue – Total costs
TR-TC
Policy toward monopoly (Dealing with monopoly)
- Competition policy
-Forbids a single firm from having a too large market share
-forbids abuse of dominant position
- Public ownership antwoord op natuurlijke monopolies zoals de noodzaak voor treinen
-Having the good supplied by the government (NS)
- Price regulation
-limit the price that a monopolist is allowed to charge
Price discrimination
A monopolist usually charges the same price to all consumers for its product, sometimes a
monopolist engages in price discrimination when they charge different prices to different
consumers for the same product. airline tickets
Perfect price discrimination the monopolist charges prices at the same level of the willingness to
pay WTP of each consumer.
By increasing the number of different prices charged, the monopolist captures more of the
consumer surplus thus making a large profit. (wordt bijna nooit gerealiseerd in het echte leven)
Monopolists want to reach this, thus they use techniques to reach perfect price discrimination, some
of these techniques are;
- Advance purchase restrictions
early buyers get discount, this separates those who are likely to shop for better prices from
those who won’t
- Volume discounts
if you buy in bulk the price is often lower
- Two part tariffs
A perfect price discrimination does not cause inefficiency because all mutually beneficial
transactions are exploited.
Monopolist: A firm that is the only producer of a good
if an industry is controlled by a monopolist it is called a monopoly
A monopolist has market power The ability to raise prices above the competitive level
Oligopolist: A firm that is a producer in an industry with a small number of producers
if an industry is controlled by oligopolies it is called an oligopoly
An oligopoly has market power when competing firms affect the market price this is called
imperfect competition
Why do monopolists exist?
Om geld te verdienen wilt een monopolist zich graag verdedigen tegen toetreders This is done via
A barrier to entry “something” that prevents other firms from entering the market five types
of barriers:
- Control of a scarce resource De Beers monopoly (controle over de mijnen voor
diamanten)
- Increasing returns to scale Reduction of costs per unit as the production increases (gas
bedrijven)
- Technological superiority (competitive zal snel in kunnen halen door investeringen)
- Network externality The value of a good or service is greater for a industry if many others
are using the same good (Facebook meer waard als er meer mensen gebruik van maken)
- Government-created barrier a patent or a copyright (enige die het mag verkopen)
How does a monopolist maximize profit?
Monopolist can set the price as high as he wants, but higher price lower sales, shown by the
demand curve
demand curve of monopolist is the same as the market demand curve because it is the sole supplier.
Marginal revenue = marginal costs Profit maximization
MR=MC
MO=MK
thus when MC crosses MR the profit maximization is realised.
Monopoly versus Perfect Competition
A monopolist drives the price up and decreases the quantity available.
Perfect competition keeps price low and increases the quantity available.
Thus a monopolist does the following:
- Produces lower quantity
- Charges higher prices Market power
- Earns profit
- Changes the CS to be much lower
, To calculate profit Total revenue – Total costs
TR-TC
Policy toward monopoly (Dealing with monopoly)
- Competition policy
-Forbids a single firm from having a too large market share
-forbids abuse of dominant position
- Public ownership antwoord op natuurlijke monopolies zoals de noodzaak voor treinen
-Having the good supplied by the government (NS)
- Price regulation
-limit the price that a monopolist is allowed to charge
Price discrimination
A monopolist usually charges the same price to all consumers for its product, sometimes a
monopolist engages in price discrimination when they charge different prices to different
consumers for the same product. airline tickets
Perfect price discrimination the monopolist charges prices at the same level of the willingness to
pay WTP of each consumer.
By increasing the number of different prices charged, the monopolist captures more of the
consumer surplus thus making a large profit. (wordt bijna nooit gerealiseerd in het echte leven)
Monopolists want to reach this, thus they use techniques to reach perfect price discrimination, some
of these techniques are;
- Advance purchase restrictions
early buyers get discount, this separates those who are likely to shop for better prices from
those who won’t
- Volume discounts
if you buy in bulk the price is often lower
- Two part tariffs
A perfect price discrimination does not cause inefficiency because all mutually beneficial
transactions are exploited.
