1. Monopolistic behavior
Lecture 20
Monopolistic behavior

2. Uniform pricing p y

3. TPS, CS, PS and DWL p y

4. Monopolistic market structure
Monopoly is socially suboptimal
Generates Pareto inefficiency
Shifts surplus from consumers to large producers

5. Measurement of market power
How to measure market power?
Candidate 1:
Problem:
Candidate 2:

6. Elasticity and markup

7. Elasticity and Markup With MR=0, elasticity= Elastic part relevant

8. How Should a Monopoly Price?
The same price for each unit to every customer - uniform pricing.
Price discrimination – many different prices for the same good
Can price-discrimination earn a monopoly higher profits? How about efficiency?

9. Types of Price Discrimination
1st-degree: Prices may differ across output units and buyers.
2nd-degree: Prices may differ across output unit but not buyers. (E.g. bulk-buying discounts.)
3rd-degree: Prices may differ across buyers but not output units (student discounts)
Two part tariff

10. First-degree price discriminationy

11. First-degree Price Discrimination
gives a monopolist all of the possible gains-to-trade,
buyers are with zero surplus,
efficient amount of output.
Solves one problem but makes the other worse

12. Third-degree Price Discrimination
Market has segments - groups of buyers (seniors, students, adults, firms)
In each segment the same price
Prices different across market segments
Common in real life

13. Third-degree Price Discrimination
Example: individual buyers, firms
Secrets of happiness

14. Third-degree Price Discrimination
Why price is smaller?