Monopoly

What is a monopoly? A market dominated by a single firm. There are no variety of goods in the market. The firm has complete control over price. Barriers prevent other firms from entering the market

Types of Monopolies

1. Natural Monopoly Market that runs most efficiently as a monopoly Less resources are wasted Approved by government What resources do you need for public water?

Why don’t water companies charge monopoly like prices? 1. Natural Monopolies Why don’t water companies charge monopoly like prices? Agrees to let government control the prices

2. Franchises

2. Franchise Contract that gives a single firm the right to sell its goods within an exclusive market

Not a franchise

What franchises are in this school?

3. Technological Monopolies

3. Technological Monopolies Patents that are given to companies This gives the company exclusive rights to sell a product for a temporary period of time.

What has been proven to be the most deadly in the month of July?

Do you think it would be expensive to research and develop this vaccine? Lets pretend we all work for a pharmaceutical company. Our goal is to research and develop a one time vaccination that will prevent the negative effects of the sun for a lifetime. (Don’t worry, you can still get a tan)

So how can patents provide an incentive for our pharmaceutical company to continue the expensive research and develop of this vaccine? Then we can be the only company selling the vaccine and make monopoly profits!!!

3. Technological Monopolies Patents promote innovation but leads to high prices

Patents and Consumers Video Time

When a monopolist produces more of their product, the price will fall. Monopolists Dilemma When a monopolist produces more of their product, the price will fall. Law of demand still applies to them!

Main feature of a monopoly Price Discrimination The division of customers into groups based on how much they will pay for a good Main feature of a monopoly

Price Discrimination Can ONLY work when: A firm has market power A firm has distinct customers What is being sold must be difficult to resell Senior citizen discount

Government Regulating Competition

Trust/Mergers Grouping of firms This can discourage competition Usually when one firm buys another This can discourage competition What firm is REALLY good at doing this?

Allowing Mergers Companies must prove at least one of the following: A merger would lower costs A merger would lower consumer prices A merger would lead to a better product The company would not become too powerful

Does this merger meet one of those 3?

Ending Monopolies

Antitrust Laws Laws that outlaw mergers Companies joining together Encourages competition in the workplace

Continued… Governments can use antitrust law to break up monopolies gaining too much market power Broke up the American Tobacco Company What competitors entered the market after this break up?

Deregulation Removal of some government controls over a market Forces firms to compete more by removing barriers of entry Can cause economic growth Can hurt consumers