The theory of monopoly. State regulation of monopoly markets.Pure Monopoly: a market structure in which: one firm sells a unique product, no substitutes, entry is blocked. the single firm (control over product price). However, still needs to deal with customers. They have considerable (not whole) control over price. Characteristics: Single Seller: only one firm = industry = monopoly. Demand curve is the demand curve for industry and firm. No close substitute: As a monopolistic firm is the only firm producing a certain product, there are no substitutes that can compete with the firm's product. Unique product. Price Maker: The pure monopolist controls the total quantity supplied and price. Increase and decrease output to control price Blocked entry: Barriers to entry keep potential competitors from entering the indutry, thus there are no immediate competitors. Economies of scale--difficult for new, small firms to compete with the monopoly's low ATC. Legal protection in forms of patents, licenses, and copyrights. Strategic pricing--monopoly's power to adjust price and run at short term losses in order to outcompete new competitors. Control of essential resources. Nonprice competition: The product produced by a pure monopolist may be either standarized (as with natural gas and electricity) or differentiated (as with Windows or Frisbees). Nonprice competition (i.e. advertisement). Examples of Monopoly: Government owned/regulated public utilities (i.e. natural gas, electric companies, water, cable TV, local telephone company). Natural Monopolies => Professional sports teams - they are the only suppliers of a particular service. In a pure monopoly are the strong barriers to entry effectively block all potential competition.
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