Monopoly: Difference between revisions

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Operate differently from competitive markets:

====Profit maximization mechanism====

Monopolists maximize profits by producing at the quantity where marginal revenue equals marginal cost (~~MR=~~MC).

Monopolists maximize profits by producing at the quantity where marginal revenue (MR) equals marginal cost (MC).

Maximization process:

*Determining the output level where MR=MC

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====Barriers to entry====

*Legal barriers:

*Legal barriers: Patents, copyrights, and government licenses

*Control of ~~essential~~ resources:

*Control of material resources: Owning key inputs such as mines, transport, etc.

*Economics of scale:

*Economics of scale: Large fixed costs make single-firm production most efficient, such as utility companies

*Network effects:

*Network effects: Value increases with more users

*Deliberate exclusionary practices:

*Deliberate exclusionary practices: Predatory pricing or exclusive contracts

==Why it is a problem==

~~{{Placeholder box|If~~ the ~~theme or common term is positive~~ for the consumer ~~this section can be omitted~~.

Economists identify several significant problems with monopoly power:

=== Higher prices and reduced output ===

Monopolists typically charge higher prices and produce less output than would occur in competitive markets.

=== Deadweight welfare loss ===

Reduce output creates a deadweight loss, a reduction in total economic welfare not transferred to any party. This represents the value that could have been created if not for the monopolies restrictions of output.

=== Reduced consumer surplus ===

Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits

=== Productive inefficiency ===

Without pressure, monopolies may lack incentives to:

* Minimize costs.

* innovate or improve product quality

* Operate at minimum efficient scale

===~~Point 1~~===

=== Potential for abuse of power ===

~~===Point 2===~~

* Paying suppliers less

}}A monopolistic market is often harmful to consumers. A monopoly inherently does not have competition, since there is no other party to compete. The monopoly can therefore fix prices as they wish, with no one to compete for ~~lower prices. This often leads to ridiculously high prices and is harmful to consumers.~~

* Lowering wages for workers

* Influencing political processes through lobbying

==Examples==

@@ Line 17: / Line 17: @@
 Operate differently from competitive markets:
 ====Profit maximization mechanism====
-Monopolists maximize profits by producing at the quantity where marginal revenue equals marginal cost (MR=MC).
+Monopolists maximize profits by producing at the quantity where marginal revenue (MR) equals marginal cost (MC).
 Maximization process:
 *Determining the output level where MR=MC
@@ Line 29: / Line 30: @@
 ====Barriers to entry====
-*Legal barriers:
+*Legal barriers: Patents, copyrights, and government licenses
-*Control of essential resources:
+*Control of material resources: Owning key inputs such as mines, transport, etc.
-*Economics of scale:
+*Economics of scale: Large fixed costs make single-firm production most efficient, such as utility companies
-*Network effects:
+*Network effects: Value increases with more users
-*Deliberate exclusionary practices:
+*Deliberate exclusionary practices: Predatory pricing or exclusive contracts
 ==Why it is a problem==
-{{Placeholder box|If the theme or common term is positive for the consumer this section can be omitted.
+Economists identify several significant problems with monopoly power:
+=== Higher prices and reduced output ===
+Monopolists typically charge higher prices and produce less output than would occur in competitive markets.
+=== Deadweight welfare loss ===
+Reduce output creates a deadweight loss, a reduction in total economic welfare not transferred to any party. This represents the value that could have been created if not for the monopolies restrictions of output.
+=== Reduced consumer surplus ===
+Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits
+=== Productive inefficiency ===
+Without pressure, monopolies may lack incentives to:
+* Minimize costs.
+* innovate or improve product quality
+* Operate at minimum efficient scale
-===Point 1===
+=== Potential for abuse of power ===
-===Point 2===
+* Paying suppliers less
-}}A monopolistic market is often harmful to consumers. A monopoly inherently does not have competition, since there is no other party to compete. The monopoly can therefore fix prices as they wish, with no one to compete for lower prices. This often leads to ridiculously high prices and is harmful to consumers.
+* Lowering wages for workers
+* Influencing political processes through lobbying
 ==Examples==