Monopoly and Antitrust Policy

Imperfectly Competitive Industry: An industry in which individual firms have some control over the price of their output.
Market Power: The ability of an imperfectly competitive firm to raise its price without losing all of the quantity demanded for its product.

Monopoly: An industry dominated by a single firm which has significant barriers to entry preventing new firms from entering the market.
Oligopoly: An industry characterized by a small number of firms, where each firm’s actions can influence market prices.
Monopolistic Competition: Firms that offer differentiated products in markets that are not perfectly competitive, allowing some price-setting ability.
Pure Monopoly: An industry with a single firm that produces a product with no close substitutes, and significant barriers to entry prevent competitors from entering the market.

Trial and Error / Test Marketing: Introducing a product on a small scale to gauge consumer interest and price acceptance.
Focus Groups: Gathering consumer opinions to shape product offerings and prices.
Benchmark Pricing: Assessing prices of similar products to determine competitive pricing points.

Marginal Revenue (MR): The revenue gained from selling one more unit, weighed against the price reduction across all units sold.
Profit Maximization (Monopolist): Occurs at an output level where MR = MC (Marginal Cost).

Barriers to Entry: Factors that inhibit new firms from entering competitive markets.
Natural Monopoly: Industries where a single firm's gradual growth leads to lower costs, rendering it more efficient than multiple competing firms.
Patents: Legal rights granted to inventors blocking other firms from producing the patented product or process.
Government Rules: Regulatory restrictions that limit the number of firms in a market.
Ownership of a Scarce Factor of Production: When a firm holds exclusive rights to an essential production resource.
Network Effects: Product value increases as more consumers adopt it, solidifying market dominance for early entrants.

Deadweight Loss (or excess burden of a monopoly): The social costs driven by monopolistic pricing and reduced market output leading to inefficiencies in resource distribution.

Price Discrimination: The practice of charging different prices to different consumers for the same product not based on differences in cost.
Perfect Price Discrimination: A theoretical scenario where a firm charges each consumer the maximum they are willing to pay.
Condition for Price Discrimination: Requires effective market segmentation, ensuring vulnerable groups do not arbitrage against higher prices.

Sherman Act (1890): Federal legislation that prohibits contracts, combinations, or conspiracies that restrain trade, and criminalizes monopolizing efforts and attempts.
Clayton Act (1914): Legislation that strengthens the Sherman Act by outlawing specific practices such as price discrimination and imposing clearer rules on monopolistic behavior to regulate business conduct.
Federal Trade Commission (FTC): An agency formulated to investigate anti-competitive behavior among firms and empower the enforcement of antitrust laws.