8.1 Monopoly

Monopoly: only provider of a good

• Caused by:

  • Patents

  • Control of resources

  • Economies of scale/other cost advantages

  • Exclusive licenses

  • Network externalities

    • Ex) Social media networks becoming valuable as people switch sites

8.2 Price Discrimination

Price discrimination: when seller can provide same good to different buys at different prices

• Firm must have market power

• Buyers with differing demand elasticities must be separable

• Must be able to prevent reselling

Perfect price discrimination: when seller can charge each buyer the most they’re willing to pay for a good

8.3 Monopolistic Competition

• Bilateral monopoly: when the market only has one buyer and one seller

8.4 Oligopoly and Game Theory

• Oligopoly: where a few firms sell a standardized or differentiated product

• Market power: ability of individual firm to influence price

• Strategic decision-making: individual must make choice but consequences depend on factors that are unknown to the individual

• Game theory: considers strategic decisions individuals in a game or market place will need to make to anticipate what a rival would do

• Prisoner’s dilemma: situation where distrust leads two individuals to chose a less than optimal result