Monopoly

• Pure monopoly-- industry is the firm
• Actual monopoly-- where firm has >25% market share
• Natural Monopoly-- high fixed costs-- gas, electricity, water, telecommunications, rail
– High barriers to entry
– Firm controls price or output/supply
– Abnormal profits in long run
– Possibility of price discrimination
– Consumer choice limited
– Prices in excess of MC

Advantages and disadvantages of monopoly:
• Advantages:
– May be appropriate if natural monopoly
– Encourages R&D
– Encourages Innovation
– Development of some products not likely without some guarantee of monopoly in production
– Economies of Scale can be
• Disadvantages:
– Exploitation of consumer-- higher prices
– Potential for supply to be limited-- less choice
– Potential for inefficiency:
X-inefficiency--