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Chapter 22

Chapter 22. Pure Monopoly. Pure Monopoly. 1. Single seller- single producer or supplier of a good/service 2. No close substitutes 3. Price Maker- controls price by controlling supply 4. Blocked Entry -economic, technological, legal

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Chapter 22

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  1. Chapter 22 Pure Monopoly

  2. Pure Monopoly • 1. Single seller- single producer or supplier of a good/service • 2. No close substitutes • 3. Price Maker- controls price by controlling supply • 4. BlockedEntry-economic, technological, legal • 5. Non-price Competition- Often PR advertising (standardized)

  3. Monopoly Examples • Pure monopolies are relatively rare • Government owned/regulated public utilities- water company, natural gas, electric companies, cable

  4. Near Monopolies • A single firm has the bulk of sales in a specific market • Ex- Intel provides 80% of microprocessors • DeBeers supplies 55% of uncut diamonds • Professional sports teams (minus NY, LA)

  5. Some Competition • There is almost always some form of competition, but substitutes are usually more expensive or less appealing

  6. Barriers to Entry • Strong barriers to entry effectively block all potential competition • 1. Economies of scale- modern technology in some industries allow only a few large firms or one firm to achieve low ATC • **it is too costly for firms to enter and compete • Ex- automobiles, commercial airlines, steel

  7. Barriers to Entry Cont’d • 2. Legal Barriers to Entry • A. Patents • B. Licenses

  8. Patents • Exclusive rights of an inventor to use, or to allow another to use, his/her invention • -last 20 years from the time of application • -R and D is what leads to most patentable inventions and products • Ex- IBM, Pfizer, GE, DuPont

  9. Licenses • The government can also limit entry into an industry through licensing • Ex- FCC only licenses certain radio stations, cities only allow certain cab companies to operate, state liquor agencies, and state lotto

  10. Barriers to Entry Cont’d • 3. Ownership or Control of Essential Resources- use private property as an obstacle to potential rivals • Ex- International Nickel Co of Canada once controlled 90% of the world’s known nickel deposits • -sand or gravel • -professional sports stadiums/arenas

  11. Barriers to Entry Cont’d • 4. Pricing and other strategic barriers • -confronted with a new firm, a monopolist might slash prices or beef up advertising • Ex- Microsoft charged more for operating systems to companies that used Netscape

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