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MicroeconomicsSecond Edition, Global Edition
Chapter 12Monopoly
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Monopoly: One seller of a good or service with no
close substitutes
Price makers: Sellers that can set the price of a
good
Market power: The ability to set the price
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Outline
12.1 Introducing a New Market Structure
12.2 Sources of Market Power
12.3 The Monopolist’s Problem
12.4 Choosing the Optimal Quantity and Price
12.5 The “Broken” Invisible Hand: The
Cost of Monopoly
12.6 Restoring Efficiency
12.7 Government Policy toward Monopoly
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Evidence-Based Economics Example:
Can a monopoly ever be good for society?
一家藥廠 SP,研發出一款過敏藥 (Claritin), 拿到了專利可以獨賣20年,如果你是藥商CEO,你會怎麼訂價?
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Key Ideas
1. Monopoly represents an extreme market
structure with a single seller.
2. Monopolies arise both naturally and
through government protection.
3. Monopolists are price-makers and produce
at the point where marginal revenue equals
marginal cost.
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Key Ideas – efficiency
• The (single-price) monopolist maximizes profits by
producing a lower quantity and charging a higher price than
perfectly competitive sellers. The result is deadweight loss.
• Efficiency can be established in a monopoly through first-
degree price discrimination (完全差別取價) or government
intervention.
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什麼樣的情境造成其他廠商難以進入市場?
Types of barriers to entry
1. Legal market power
2. Natural market power
• (1) Control of key resources
• (2) Economies of scale
Barriers to entry
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1. Legal market power
(a) Government-granted permission to be the
sole producer and seller of a good
專利權Patent ® ;
早期台鹽;台糖;台鐵
(b) Government-granted rights to the creator
of literary or artistic work
智慧財產權Copyright ©
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2. Natural market power
When a single firm obtains market power
through barriers to entry created by the firm
itself.
(1) Control of key resources essential for the
production of a good or service
(2) Economies of scale
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Examples:
• Alcoa controlling bauxite, used in production of
aluminum
• De Beers’ control of diamond production
Control of Key Resources
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Control of Key Resources
Network externalities : When a product’s value
increases as more consumers use it
Ex: Facebook, eBay,
FB have million of users : key resources
最近臉書被告了:
https://www.storm.mg/article/3284179
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Natural monopoly
Emerges because it enjoys economies of
scale over a very large range of output Q
ATC (Q) > MC (Q) even when Q is large
Economies of scale
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Quick Review: ATC and MC in the competitive market
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Average Total Cost and Marginal Cost for
a Natural Monopoly
Both monopolist and perfect competitor
• Produce an output using a production process and inputs
• Incur production costs
Can a monopolist charge any price it wants to?
Monopoly Problem:
單一價格時如何定價?
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Perfectly Competitive Firms and
Monopolies Face Different Demand
Curves
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藥商SP應該要如何為產品Claritin定價呢?
Optimal Choice: MR=MC.
Unlike a firm in a competitive market, MR is not P.
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Exhibit 12.5 Revenues and Costs for
Claritin at Different Levels of Output
Quantity
(in millions
of pills)
Price Total
Revenue
(in
millions)
Marginal
Revenue
Total Cost
(in millions)
Fixed Cost
(in millions)
Marginal
Cost
ATC
100 $5.50 $550 $5 $110 $10 $1.00 $1.10
200 $5.00 $1,000 $4 $210 $10 $1.00 $1.05
300 $4.50 $1,350 $3 $310 $10 $1.00 $1.033
400 $4.00 $1,600 $2 $410 $10 $1.00 $1.025
500 $3.50 $1,750 $1 $510 $10 $1.00 $1.02
600 $3.00 $1,800 $0 $610 $10 $1.00 $1.017
700 $2.50 $1,750 –$1 $710 $10 $1.00 $1.014
800 $2.00 $1,600 –$2 $810 $10 $1.00 $1.013
900 900
$1.50
$1,350 –$3 $910 $10 $1.00 $1.011
1,000 $1.00 $1,000 –$4 $1,010 $10 $1.00 $1.01
1,100 $0.50 $550 –$5 $1,110 $10 $1.00 $1.009
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Understanding MR:
Example: Assume this monopolist is selling 200 units at a
price of $5 each and wants to increase the quantity it sells to
400 units. It has to lower the price to $4 to do so.
Good News Bad News
Selling 200 more units Charging $1 less on
at $4 each = $800 200 units it was selling
before = -$200
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Exhibit 12.6 The Quantity Effect and the
Price Effect on Revenues for Claritin
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Relationship among Price, Marginal Revenue,
and Total Revenue
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Exhibit 12.8 Marginal Revenue and
Marginal Cost for Claritin
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Exhibit 12.9 Choosing the Profit-
Maximizing Price for Claritin
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Profit = Total revenue – total cost
Total revenue = P x Q
Total cost = ATC x Q
Profit = (P x Q) – (ATC x Q)
= Q (P – ATC)
Profit = 500M($3.50 - $1.02)
= $1,240,000,000
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Exhibit 12.10 Computing Profits for a
Monopolist
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A supply curve answers the question:
If the price is $x, how many units does the firm want
to produce?
A monopolist is not a price taker, but a price maker;
therefore, the supply relationship does not exist.
獨佔廠商有沒有供給線?
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Surplus Allocations: Perfect Competition
Versus Monopoly
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Exhibit 12.1 Two Market StructuresCharacteristic Perfect Competition Monopoly
Number of firms/sellers/
producers
Many One
Type of product/service
sold
Identical
(homogeneous)
Good or service with no
close
substitutes
Example of product Corn grown by various
farmers
Patented drugs; tap water
Barriers to entry None: free entry and
exit
Yes: high
Price-taker or price-
maker?
Price-taker; price given
by the
market
Price-maker—no
competitors;
no close substitutes
Price P = MR = MC Set P > MR = MC
Demand curve facing
the
firm
Horizontally sloped;
perfectly
elastic demand curve
Downward-sloping
Social surplus Maximized Not maximized, but
sometimes
society benefits from
research
and development
Equilibrium long-run
profits
Zero Potentially greater than
zero
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The “Broken” Invisible Hand
看不見的手不再神奇
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• Price Discrimination
• Government Regulation
Restoring Efficiency
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Price discrimination
Charging different customers different prices for the
same good or service when there are no cost
differences
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Three degrees of price discrimination
1. First-degree (perfect)
2. Second-degree (依購買商品特性設計各式定價,
比如說襪子3個100,一雙40 )
3. Third-degree (依消費者特質可觀察的特質進行差
別取價)
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First-degree (perfect) price
discrimination
When each consumer is charged the
maximum he/she is willing to pay
Examples: buying a car, eBay
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Surplus Allocations For a Monopoly:
With and Without Perfect Price
Discrimination
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Third-degree price discrimination
Consumers are charged different prices
based on the characteristics of the customer or
location
Examples: senior citizen discounts, student
discounts, theater matinee discounts
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Why create different markets?
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What if firms don’t know
what someone’s willingness
to pay (elasticity) is?
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Second-degree price discrimination
Consumers are charged different prices based on
the characteristics of the purchase
Examples:
百貨公司周年慶
排隊排很久才能買到的特價商品
last-minute hotel rooms
商務艙經濟艙
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Why do firms offer mail-in (or online) rebates
instead of just discounting the price up front?
為什麼商品抽獎活動常常很麻煩?
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Government Intervention 政府能做什麼?
• Antitrust policy
• try to prevent anti-competitive pricing, low quantities, and
deadweight loss from emerging and dominating markets
• 反托拉斯法 (美國)
• 公平交易法 (台灣)
• Price regulation
• 台電的電價
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Efficient (socially optimal) price
Price is equal to marginal cost
Fair-returns price
Price is equal to average total cost
Price Regulations
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Exhibit 12.11 Surplus Allocations: Perfect
Competition Versus Monopoly
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Antitrust policy – US example
Sherman Act (1890): Prohibited agreements or actions that
would put restraints on trade
Clayton Antitrust Act (1914): Strengthened the government’s
powers and authorized private lawsuits
Example: Microsoft case (1998)
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Microsoft accused of restraint of trade
• Monopolizing market
• Bundling Windows operating system with Internet
Explorer browser
• Keeping competitors from obtaining large market
share
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Ruling
• Microsoft was not broken up into two separate
firms (one for operating system and one for
applications)
• But it had to change marketing practices and
make it easier for other browsers to work with
Windows
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好樂迪與錢櫃申請合併
2019: 提出第四次申請,公平交易委員會不同意
理由: 聯合市佔率超過4成5
2020: 錢櫃提出行政訴訟敗訴
• https://www.storm.mg/lifestyle/1618845
• https://news.cnyes.com/news/id/4398717
• https://www.cna.com.tw/news/firstnews/202011260308.aspx
如果你是好樂迪與錢櫃雇用的經濟學家,或是Microsoft 雇用的經濟學家,你會做什麼樣的論述,尋找什麼樣的數據?
Copyright © 2018 Pearson Education, Ltd. All Rights Reserved
Evidence-Based Economics Example:
Can a monopoly ever
be good for society?
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Evidence-Based Economics Example:
Evidence suggests that market power can be an
important factor in innovation
Strongest case when firms are in industries with
brilliant competitors to mimic and spur innovation