Professional Documents
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12
Monopoly and Antitrust Policy
Imperfect Competition
and Market Power
An imperfectly competitive industry is
an industry in which single firms have
some control over the price of their output.
Market power is the imperfectly
competitive firms ability to raise price
without losing all demand for its product.
Pure Monopoly
A pure monopoly is an industry with a
single firm that produces a product for
which there are no close substitutes and in
which significant barriers to entry prevent
other firms from entering the industry to
compete for profits.
Barriers to Entry
Things that prevent new firms from
entering and competing in imperfectly
competitive industries include:
Government franchises, or firms that
Barriers to Entry
Things that prevent new firms from
entering and competing in imperfectly
competitive industries include:
Patents or barriers that grant the exclusive
Barriers to Entry
Things that prevent new firms from
entering and competing in imperfectly
competitive industries include:
Economies of scale and other cost
Barriers to Entry
Things that prevent new firms from
entering and competing in imperfectly
competitive industries include:
Ownership of a scarce factor of
market, and
4. what price to charge for their output.
markets
The monopolistic firm cannot price discriminate
The monopoly faces a known demand curve
2002 Prentice Hall Business Publishing
Natural Monopoly
A natural monopoly is an
industry that realizes such
large economies of scale in
producing its product that
single-firm production of that
good or service is most
efficient.