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3.4.5 Monopoly, COSTS AND BENEFITS OF PRICE DISCRIMINATION, image, image,…
3.4.5 Monopoly
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PRICE DISCRIMINATION
This is when a monopolist charges a different price to a different firm in a different market for the same good.
CONDITIONS:
-Demand for good must have different elasticities
-Firms must have price making ability
-Must be able to prevent arbritrage
-Must have information to separate the market.
NATURAL MONOPOLIES
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Rational for 1 firm to supply. Any entrant firm will not be able to reach the economies of scale of the incumbent firm.
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EFFICIENCIES
-Not productively efficient, since they do not produce at MC=AC.
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However, there is no incentive to invest due to low competition.
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CREATIVE DESTRUCTION
-Monopolies are not permanent as they give incentives for other firms to break down the monopoly through a process of creative destruction.
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