Microeconomics - cool.ntu.edu.tw

MicroeconomicsSecond Edition, Global Edition

Chapter 12Monopoly

Monopoly: One seller of a good or service with no

close substitutes

Price makers: Sellers that can set the price of a

Market power: The ability to set the price

Outline

12.1 Introducing a New Market Structure

12.2 Sources of Market Power

12.3 The Monopolist’s Problem

12.4 Choosing the Optimal Quantity and Price

12.5 The “Broken” Invisible Hand: The

Cost of Monopoly

12.6 Restoring Efficiency

12.7 Government Policy toward Monopoly

Evidence-Based Economics Example:

Can a monopoly ever be good for society?

一家藥廠 SP，研發出一款過敏藥 (Claritin), 拿到了專利可以獨賣20年，如果你是藥商CEO，你會怎麼訂價?

Key Ideas

1. Monopoly represents an extreme market

structure with a single seller.

2. Monopolies arise both naturally and

through government protection.

3. Monopolists are price-makers and produce

at the point where marginal revenue equals

marginal cost.

Key Ideas – efficiency

• The (single-price) monopolist maximizes profits by

producing a lower quantity and charging a higher price than

perfectly competitive sellers. The result is deadweight loss.

• Efficiency can be established in a monopoly through first-

degree price discrimination (完全差別取價) or government

intervention.

什麼樣的情境造成其他廠商難以進入市場?

Types of barriers to entry

1. Legal market power

2. Natural market power

• (1) Control of key resources

• (2) Economies of scale

Barriers to entry

1. Legal market power

(a) Government-granted permission to be the

sole producer and seller of a good

專利權Patent ® ;

早期台鹽；台糖；台鐵

(b) Government-granted rights to the creator

of literary or artistic work

2. Natural market power

When a single firm obtains market power

through barriers to entry created by the firm

itself.

(1) Control of key resources essential for the

production of a good or service

(2) Economies of scale

Examples:

• Alcoa controlling bauxite, used in production of

aluminum

• De Beers’ control of diamond production

Control of Key Resources

Network externalities : When a product’s value

increases as more consumers use it

Ex: Facebook, eBay,

FB have million of users : key resources

最近臉書被告了:

https://www.storm.mg/article/3284179

Natural monopoly

Emerges because it enjoys economies of

scale over a very large range of output Q

ATC (Q) > MC (Q) even when Q is large

Economies of scale

Quick Review: ATC and MC in the competitive market

Average Total Cost and Marginal Cost for

a Natural Monopoly

Both monopolist and perfect competitor

• Produce an output using a production process and inputs

• Incur production costs

Can a monopolist charge any price it wants to?

Monopoly Problem:

單一價格時如何定價?

Perfectly Competitive Firms and

Monopolies Face Different Demand

Curves

藥商SP應該要如何為產品Claritin定價呢?

Optimal Choice: MR=MC.

Unlike a firm in a competitive market, MR is not P.

Exhibit 12.5 Revenues and Costs for

Claritin at Different Levels of Output

Quantity

(in millions

of pills)

Price Total

Revenue

millions)

Marginal

Revenue

Total Cost

(in millions)

Fixed Cost

(in millions)

Marginal

100 $5.50 $550 $5 $110 $10 $1.00 $1.10

200 $5.00 $1,000 $4 $210 $10 $1.00 $1.05

300 $4.50 $1,350 $3 $310 $10 $1.00 $1.033

400 $4.00 $1,600 $2 $410 $10 $1.00 $1.025

500 $3.50 $1,750 $1 $510 $10 $1.00 $1.02

600 $3.00 $1,800 $0 $610 $10 $1.00 $1.017

700 $2.50 $1,750 –$1 $710 $10 $1.00 $1.014

800 $2.00 $1,600 –$2 $810 $10 $1.00 $1.013

900 900

$1,350 –$3 $910 $10 $1.00 $1.011

1,000 $1.00 $1,000 –$4 $1,010 $10 $1.00 $1.01

1,100 $0.50 $550 –$5 $1,110 $10 $1.00 $1.009

Understanding MR:

Example: Assume this monopolist is selling 200 units at a

price of $5 each and wants to increase the quantity it sells to

400 units. It has to lower the price to $4 to do so.

Good News Bad News

Selling 200 more units Charging $1 less on

at $4 each = $800 200 units it was selling

before = -$200

Exhibit 12.6 The Quantity Effect and the

Price Effect on Revenues for Claritin

Relationship among Price, Marginal Revenue,

and Total Revenue

Exhibit 12.8 Marginal Revenue and

Marginal Cost for Claritin

Exhibit 12.9 Choosing the Profit-

Maximizing Price for Claritin

Profit = Total revenue – total cost

Total revenue = P x Q

Total cost = ATC x Q

Profit = (P x Q) – (ATC x Q)

= Q (P – ATC)

Profit = 500M($3.50 - $1.02)

= $1,240,000,000

Exhibit 12.10 Computing Profits for a

Monopolist

A supply curve answers the question:

If the price is $x, how many units does the firm want

to produce?

A monopolist is not a price taker, but a price maker;

therefore, the supply relationship does not exist.

獨佔廠商有沒有供給線?

Surplus Allocations: Perfect Competition

Versus Monopoly

Exhibit 12.1 Two Market StructuresCharacteristic Perfect Competition Monopoly

Number of firms/sellers/

producers

Many One

Type of product/service

Identical

(homogeneous)

Good or service with no

substitutes

Example of product Corn grown by various

farmers

Patented drugs; tap water

Barriers to entry None: free entry and

Yes: high

Price-taker or price-

maker?

Price-taker; price given

by the

market

Price-maker—no

competitors;

no close substitutes

Price P = MR = MC Set P > MR = MC

Demand curve facing

Horizontally sloped;

perfectly

elastic demand curve

Downward-sloping

Social surplus Maximized Not maximized, but

sometimes

society benefits from

research

and development

Equilibrium long-run

profits

Zero Potentially greater than

The “Broken” Invisible Hand

看不見的手不再神奇

• Price Discrimination

• Government Regulation

Restoring Efficiency

Price discrimination

Charging different customers different prices for the

same good or service when there are no cost

differences

Three degrees of price discrimination

1. First-degree (perfect)

2. Second-degree (依購買商品特性設計各式定價，

比如說襪子3個100，一雙40 )

3. Third-degree (依消費者特質可觀察的特質進行差

別取價)

First-degree (perfect) price

discrimination

When each consumer is charged the

maximum he/she is willing to pay

Examples: buying a car, eBay

Surplus Allocations For a Monopoly:

With and Without Perfect Price

Discrimination

Third-degree price discrimination

Consumers are charged different prices

based on the characteristics of the customer or

location

Examples: senior citizen discounts, student

discounts, theater matinee discounts

Why create different markets?

What if firms don’t know

what someone’s willingness

to pay (elasticity) is?

Second-degree price discrimination

Consumers are charged different prices based on

the characteristics of the purchase

Examples:

百貨公司周年慶

排隊排很久才能買到的特價商品

last-minute hotel rooms

商務艙經濟艙

Why do firms offer mail-in (or online) rebates

instead of just discounting the price up front?

為什麼商品抽獎活動常常很麻煩?

Government Intervention 政府能做什麼?

• Antitrust policy

• try to prevent anti-competitive pricing, low quantities, and

deadweight loss from emerging and dominating markets

• 反托拉斯法 (美國)

• 公平交易法 (台灣)

• Price regulation

• 台電的電價

Efficient (socially optimal) price

Price is equal to marginal cost

Fair-returns price

Price is equal to average total cost

Price Regulations

Exhibit 12.11 Surplus Allocations: Perfect

Competition Versus Monopoly

Antitrust policy – US example

Sherman Act (1890): Prohibited agreements or actions that

would put restraints on trade

Clayton Antitrust Act (1914): Strengthened the government’s

powers and authorized private lawsuits

Example: Microsoft case (1998)

Microsoft accused of restraint of trade

• Monopolizing market

• Bundling Windows operating system with Internet

Explorer browser

• Keeping competitors from obtaining large market

Ruling

• Microsoft was not broken up into two separate

firms (one for operating system and one for

applications)

• But it had to change marketing practices and

make it easier for other browsers to work with

Windows

好樂迪與錢櫃申請合併

2019: 提出第四次申請，公平交易委員會不同意

理由: 聯合市佔率超過4成5

2020: 錢櫃提出行政訴訟敗訴

• https://www.storm.mg/lifestyle/1618845

• https://news.cnyes.com/news/id/4398717

• https://www.cna.com.tw/news/firstnews/202011260308.aspx

如果你是好樂迪與錢櫃雇用的經濟學家，或是Microsoft 雇用的經濟學家，你會做什麼樣的論述，尋找什麼樣的數據?

Can a monopoly ever

be good for society?

Evidence suggests that market power can be an

important factor in innovation

Strongest case when firms are in industries with

brilliant competitors to mimic and spur innovation

Microeconomics - cool.ntu.edu.tw

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