Use of monopoly power

A monopolist raises the price of its product two times

 

Let us suppose that the demand for the monopolist product is totally inelastic. This means that a portion of money passes to the monopolist and the volume of consumption does not change.

 

 

Strong version: we should compare the utilities in both cases. We have three options:

• The monopolist is richer (e.g. the large company sells to poor people) – WORSE

• The monopolist is poorer (e.g. the poor doctor

 

• The mixed situations (some customers are 2

richer but some are poorer than the

monopolist) -- INDEFINITE

 

Weak version: the cases are NON-COMPARABLE because 1

some participants win in one case while others in

other case.

 

Money transfer from consumers to monopolist

 

 

Storchevoy M. A. Corporate Social Responsibility. 2013

Topic 2 (1) Normative Analysis: Utilitarianism

 

 

Unlicensed software

Poor Russian school teacher installs unlicensed Windows

 

This case has two special conditions. First, the product is non-material (information). Second, there is a high chance that the teacher would not buy the Windows if it was impossible to install an unlicensed version. We have to analyze both cases.

 

Case 1. Microsoft lost the revenue from this copy of Windows because teacher would buy Windows if was impossible to get an unlicensed version. Here we have a pure redistribution of income, as with the monopolist but in the opposite direction (money moves from the company to the consumer). Strong version: we need to compare the utilities of the teacher and Microsoft. As the company is much wealthier that the teacher, we have the total utility increase here. Especially if the teacher uses the Windows for educational purposes and a lot of students get better education. So, it is IMPROVEMENT. Weak version: we can not compare and interchange utilities of the teacher and Microsoft, so these states are NON-COMPARABLE.

Case 2. Microsoft had not lost the revenue from this copy of Windows, because the teacher would not buy Windows if was impossible to get an unlicensed version.

Strong version: the utility of Microsoft does not change in any case so the total utility is higher if the teacher installs the unlicensed Windows. IMPROVEMENT

Weak version: we can not compare the utilities but we do not need to compare them in this case. This is

Pareto improvement. IMPROVEMENT

 

Storchevoy M. A. Corporate Social Responsibility. 2013

Topic 2 (1) Normative Analysis: Utilitarianism