【文章內(nèi)容簡介】 020 Pearson Education, Inc. Chapter 10 46 Measuring Monopoly Power ? Our firm would have more monopoly power, of course, if it could get rid of the other firms ?But the firm?s monopoly power might still be substantial ? How can we measure monopoly power to pare firms? ? What are the sources of monopoly power? ?Why do some firms have more than others? 169。2020 Pearson Education, Inc. Chapter 10 47 Measuring Monopoly Power ? Could measure monopoly power by the extent to which price is greater than MC for each firm ? Lerner?s Index of Monopoly Power ?L = (P MC)/P ?The larger the value of L (between 0 and 1) the greater the monopoly power ?L is expressed in terms of Ed ?L = (P MC)/P = 1/Ed ?Ed is elasticity of demand for a firm, not the market 169。2020 Pearson Education, Inc. Chapter 10 48 Monopoly Power ?Monopoly power, however, does not guarantee profits ?Profit depends on average cost relative to price ?One firm may have more monopoly power but lower profits due to high average costs 169。2020 Pearson Education, Inc. Chapter 10 49 Rule of Thumb for Pricing ?Pricing for any firm with monopoly power: ?If Ed is large, markup is small ?If Ed is small, markup is large ? ?dEMCP11 ??Elasticity of Demand and Price Markup P* MR D $/Q Quantity MC Q* P*MC The more elastic is demand, the less the markup. D MR $/Q Quantity MC Q* P* P*MC 169。2020 Pearson Education, Inc. Chapter 10 51 Markup Pricing: Supermarkets amp。 Convenience Stores ?Supermarkets ? ?M C . a b o v e 11%10 about s e t P r ic e s s t o r e s in d i v id u a l f o r 3.p r o d u c t S im i la r 2.f ir m s S e v e r a l 1..5)(.410MCMCMCPEd???????169。2020 Pearson Education, Inc. Chapter 10 52 Markup Pricing: Supermarkets amp。 Convenience Stores ?Convenience Stores ? ?1 . H i g h e r p r i ces t h a n su p e r m a r k e ts2 . C o n v e n i e n ce d i ff e r e n tiat e s th e m3 . 54 . 1 .2 5 ( )1 1 5 0 .85 . P r i ces se t a b o u t 2 5 % a b o v e M C .dEM C M CP M C??? ? ???169。2020 Pearson Education, Inc. Chapter 10 53 Markup Pricing: Supermarkets amp。 Convenience Stores ?Convenience stores have more monopoly power ?Convenience stores do have higher profits than supermarkets, however ?Volume is far smaller and average fixed costs are larger 169。2020 Pearson Education, Inc. Chapter 10 54 Sources of Monopoly Power ?Why do some firms have considerable monopoly power, and others have little or none? ?Monopoly power is determined by ability to set price higher than marginal cost ?A firm?s monopoly power, therefore, is determined by the firm?s elasticity of demand 169。2020 Pearson Education, Inc. Chapter 10 55 Sources of Monopoly Power ?The less elastic the demand curve, the more monopoly power a firm has ?The firm?s elasticity of demand is determined by: 1) Elasticity of market demand 2) Number of firms in market 3) The interaction among firms 169。2020 Pearson Education, Inc. Chapter 10 56 Elasticity of Market Demand ?With one firm, their demand curve is market demand curve ?Degree of monopoly power is determined pletely by elasticity of market demand ?With more firms, individual demand may differ from market demand ?Demand for a firm?s product is more elastic than the market elasticity 169。2020 Pearson Education, Inc. Chapter 10 57 Number of Firms ?The monopoly power of a firm falls as the number of firms increases。 all else equal ?More important are the number of firms with significant market share ?Market is highly concentrated if only a few firms account for most of the sales ?Firms would like to create barriers to entry to keep new firms out of market ?Patent, copyrights, licenses, economies of scale 169。2020 Pearson Education, Inc. Chapter 10 58 Interaction Among Firms ?If firms are aggressive in gaining market share by, for example, undercutting the other firms, prices may reach close to petitive levels ?If firms collude (violation of antitrust rules), could generate substantial monopoly power ?Markets are dynamic and therefore, so is the concept of monopoly power 169。2020 Pearson Education, Inc. Chapter 10 59 The Social Costs of Monopoly Power ?Monopoly power results in higher prices and lower quantities ?However, does monopoly power make consumers and producers in the aggregate better or worse off? ?We can pare producer and consumer surplus when in a petitive market and in a monopolistic market 169。2020 Pearson Education, Inc. Chapter 10 60 The Social Costs of Monopoly ? Perfectly petitive firm will produce where MC = D ? PC and QC ? Monopoly produces where MR = MC, getting their price from the demand curve ? PM and QM ? There is a loss in consumer surplus when going from perfect petition to monopoly ? A deadweight loss is also created with monopoly 169。2020 Pearson Education, Inc. Chapter 10 61 B A Lost Consumer Surplus Because of the higher price, consumers lose A+B and producer gains AC. C Deadweight Loss from Monopoly Power Quantity AR=D MR MC QC PC Pm Qm $/Q Deadweight Loss 169。2020 Pearson Education, Inc. Chapter 10 62 The Social Costs of Monopoly ?Social cost of monopoly is likely to exceed the deadweight loss ?Rent Seeking ?Firms may spend to gain monopoly power ? Lobbying ? Advertising ? Building excess capacity 169。2020 Pearson Education, Inc. Chapter 10 63 The Social Costs of Monopoly ?The incentive to engage in monopoly practices is determined by the profit to be gained ?The larger the transfer from consumers to the firm, the larger the social cost of monopoly 169。2020 Pearson Education, Inc. Chapter 10 64 The Social Costs of Monopoly ?Example ?In 1996, Archer Daniels Midland (ADM) successfully lobbied for reg