Monopoly and Market Power

These flashcards cover key concepts related to monopolies, market power, pricing strategies, and regulations as discussed in the provided lecture notes.

Monopoly

A market structure characterized by a single seller or producer that controls the market.

Market Power

The ability of a firm to influence the price of its product or constrain the market.

Barriers to Entry

Obstacles that make it difficult for new competitors to enter a market.

Economies of Scale

Cost advantages that a business obtains due to the scale of operation, with cost per unit of output generally decreasing with increasing scale.

Natural Monopoly

A type of monopoly that exists due to the high fixed costs associated with entering the market, making it more efficient for one firm to produce the entire output.

Price Discrimination

The practice of charging different prices to different consumers for the same product.

First-Degree Price Discrimination

Pricing strategy where firms charge the maximum price that each customer is willing to pay.

Second-Degree Price Discrimination

Pricing strategy where firms charge different prices based on the quantity purchased.

Third-Degree Price Discrimination

Pricing strategy where firms charge different prices to different groups of consumers based on their price elasticity of demand.

Antitrust Laws

Legislation enacted to prevent new monopolies from forming and to break up those that already exist.

Concentration Ratio

A measure of the market share of the largest firms in an industry.

Herfindahl-Hirschman Index (HHI)

A measure of market concentration calculated by summing the squares of the market shares of each firm.

X-Inefficiency

The difference between the optimal output level and the output actually produced, leading to inefficient resource use.

Deadweight Loss

The loss in economic efficiency when the equilibrium outcome is not achievable or not achieved.

Marginal Revenue (MR)

The additional revenue that will be generated by increasing product sales by one unit.

Average Cost Pricing Rule

Regulatory framework where firms are allowed to charge a price equal to the average total cost of production.

Rate of Return Regulation

Regulation that allows firms to set prices to earn a specific return on investments.

Price Caps

Regulations that prevent a natural monopoly from charging prices above a certain level.

Contestable Market

A market where entry and exit are easy and firms may face potential competition even if they are the only supplier.