Monopoly
- A single company (or group) owns all (or nearly all) of the market for a given type of product or service
- Anti-trust laws are designed to prevent anticompetitive practice & so they try to prevent monopolistic control (and price fixing…)
- Sometimes a monopoly is “allowed” eg government control of an industry (utilities, state airlines)
- Patents in effect create a monopoly by reserving the market for the patent holder for a time.
Why not have Monopoly?
- Prices high – controlled by one company
- Can increase prices and not reduce demand
- Difficult to enter so lack of competition
- Innovation stagnation
- Inefficient production
- Consumers suffer
Note: A “buyers monopoly” or “monopsony/oligopsony” is where major buyer(s) controls a large portion of the market and depress prices to detriment of seller (supermarket milk?)
Oligopoly
- Where a particular market is controlled by a small number of companies
- Must have at least 2 companies
- Duopoly is a special case where exactly two companies control all the market
Perfect Competition
Is a market where:
- All companies sell a near-identical product.
- All firms are price takers.
- All firms have a relatively small market share.
- Buyers know the nature of the product being sold and the prices charged by each firm.
- There is freedom of entry and exit into the market
Price Elasticity (of Demand)
Price Elasticity is how responsive Demand is to Price:
- Elastic if: (% change in demand)/(% change in price) > 1
- Inelastic if: (% change in demand)/(% change in price) < 1
- Usually negative, but sign ignored
- Usually not linear – so value is only true over a small range
