Chapter 12 Cards: Monopoly

Flashcards providing vocabulary terms and definitions related to monopolies, their market power, sources of entry barriers, pricing strategies, and government policies.

Monopoly

An industry structure in which only one seller provides a good or service that has no close substitutes.

Price-makers

Sellers that set the price of a good.

Market power

The ability of sellers to affect prices.

Barriers to entry

Obstacles that prevent potential competitors from entering the market, providing a seller with protection from potential competitors entering the market.

Legal market power

When a firm obtains market power through barriers to entry created not by the firm itself but by the government.

Patent

The privilege granted to an individual or company by the government, which gives him or her the sole right to produce and sell a good.

Copyright

An exclusive right granted by the government to the creator of a literary or artistic work.

Natural market power

Occurs when a firm obtains market power through barriers to entry created by the firm itself.

Key resources

Materials that are essential for production of a good or service.

Network externalities

Occur when a product's value increases as more consumers begin to use it.

Natural monopoly

A market in which one firm can provide a good or service at a lower cost than can two or more firms.

Monopolist's optimal pricing rule

Set Price > Marginal revenue = Marginal cost.

Price discrimination

Occurs when firms charge different consumers different prices for the same good or service.

Perfect price discrimination (first-degree)

Occurs when a firm charges each buyer exactly his or her willingness to pay.

Second-degree price discrimination

Occurs when consumers are charged different prices based on characteristics of their purchase, such as the quantity they purchase.

Third-degree price discrimination

Occurs when price varies based on a consumer's attributes.

Antitrust policy

Aims to regulate and prevent anticompetitive pricing.

Efficient or socially optimal price

A price set at marginal cost, which maximizes total surplus.

Fair-returns price

A price set at average total cost, allowing the monopolist to make zero economic profits.