Monopoly: Difference between revisions
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*Single producer or seller supplying the entire market demand.<ref>{{Cite web |last=Nasrudin |first=Ahmad |date=January 22, 2025 |title=Monopoly: Meaning, Examples, Characteristics, Causes, Advantages, Disadvantages |url=https://penpoin.com/monopoly/ |website=penpoin.com}}</ref><ref>{{Cite web |title=Monopoly |url=https://www.law.cornell.edu/wex/monopoly |website=law.cornell.edu}}</ref> | *Single producer or seller supplying the entire market demand.<ref>{{Cite web |last=Nasrudin |first=Ahmad |date=January 22, 2025 |title=Monopoly: Meaning, Examples, Characteristics, Causes, Advantages, Disadvantages |url=https://penpoin.com/monopoly/ |website=penpoin.com}}</ref><ref>{{Cite web |title=Monopoly |url=https://www.law.cornell.edu/wex/monopoly |website=law.cornell.edu}}</ref> | ||
*No close substitutes or comparable product for consumers. | *No close substitutes or comparable product for consumers. | ||
*High barriers to entry prevent competitors from entering the market | *High barriers to entry prevent competitors from entering the market. | ||
*Price maker ability allows monopolist to set market prices | *Price maker ability allows monopolist to set market prices. | ||
*Downward-sloping demand curve, monopolist face the entire market demand curve | *Downward-sloping demand curve, monopolist face the entire market demand curve. | ||
===Monopoly process=== | ===Monopoly process=== | ||
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Maximization process: | Maximization process: | ||
*Determining the output level where MR=MC | *Determining the output level where MR=MC. | ||
*Setting the price according to what consumers are willing to pay for that quantity | *Setting the price according to what consumers are willing to pay for that quantity. | ||
*Earning economic profits in the long run due to barriers preventing competitor entry | *Earning economic profits in the long run due to barriers preventing competitor entry. | ||
====Price Discrimination Strategies==== | ====Price Discrimination Strategies==== | ||
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*First-degree: Charging each customer their maximum willingness to pay. | *First-degree: Charging each customer their maximum willingness to pay. | ||
*Second-degree: Pricing varies by quantity purchased. | *Second-degree: Pricing varies by quantity purchased. | ||
*Third-degree: Segmenting markets based on characteristics like age, location, or time of purchase | *Third-degree: Segmenting markets based on characteristics like age, location, or time of purchase. | ||
====Barriers to entry==== | ====Barriers to entry==== | ||
*Legal barriers: Patents, copyrights, and government licenses | *Legal barriers: Patents, copyrights, and government licenses. | ||
*Control of material resources: Owning key inputs such as mines, transport, etc. | *Control of material resources: Owning key inputs such as mines, transport, etc. | ||
*Economics of scale: Large fixed costs make single-firm production most efficient, such as utility companies | *Economics of scale: Large fixed costs make single-firm production most efficient, such as utility companies. | ||
*Network effects: Value increases with more users | *Network effects: Value increases with more users. | ||
*Deliberate exclusionary practices: Predatory pricing or exclusive contracts | *Deliberate exclusionary practices: Predatory pricing or exclusive contracts. | ||
==Why it is a problem== | ==Why it is a problem== | ||
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===Reduced consumer surplus=== | ===Reduced consumer surplus=== | ||
Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits | Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits. | ||
===Productive inefficiency=== | ===Productive inefficiency=== | ||
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*Minimize costs. | *Minimize costs. | ||
*innovate or improve product quality | *innovate or improve product quality. | ||
*Operate at minimum efficient scale | *Operate at minimum efficient scale. | ||
===Potential for abuse of power=== | ===Potential for abuse of power=== | ||
*Paying suppliers less | *Paying suppliers less. | ||
*Lowering wages for workers | *Lowering wages for workers. | ||
*Influencing political processes through lobbying | *Influencing political processes through lobbying. | ||
==Examples== | ==Examples== | ||
* | * U.S. Steel (1900) | ||
* | * Standard Oil (1900) | ||
* | * American Tobacco (1890-1907) | ||
* [[AT&T|The American Telephone and Telegraph Company]] (AT&T) controlled telecommunications in America until 1982. | |||
[[Nvidia]] uses its market leader position to mislead consumers and threaten media. | * De Beers Group had 90% market share in 1980 and 29% as of 2022. | ||
* [[Nvidia]] uses its market leader position to mislead consumers and threaten media. | |||
[[Ticketmaster Entertainment, LLC|Ticketmaster]] is often referred to as a monopoly of live events. | * [[Ticketmaster Entertainment, LLC|Ticketmaster]] is often referred to as a monopoly of live events. | ||
==References== | ==References== | ||