econ ch 9 - monopoly

monopoly

a firm that is the only seller of a good or service that does not have a close substitute

market power

The ability of a firm to set prices for its output in the market.

barriers to entry

Obstacles that make it difficult for a firm to enter an industry, including control of a key resource, prohibitive fixed costs, or government protection.

economies of scale

As a firm’s output increases, its long-run average total cost decreases.

price discrimination

Charging different consumers different prices for the same product

perfect ( first degree) discrimination

Charging each consumer the maximum price each is willing to pay, thereby capturing all consumer surplus.

2nd degree price discrimination

Charging different consumers different prices based on the quantities of the product they purchase.

3rd degree price discrimination

Charging different groups of consumers different prices based on their price elasticity of demand.

natural monopoly

An industry exhibiting large economies of scale such that efficient production occurs when only one firm serves the market.

concentration ratio

The share of shipments or sales accounted for by the largest firms in the industry (typically the top four or eight).

herfindahl hirschman index (HHI)

A way of measuring industry concentration, equal to the sum of the squares of each firm’s market share in the industry.

contestable market

Markets that look monopolistic but where low entry costs and the sheer threat of entry keeps prices low.