1、1of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyChapter 11 Monopoly-By Jacinda Jia2of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly
2、and Antitrust PolicyTime Warner Rules ManhattanIn this chapter, we will develop an economic model of monopolies that can help us to analyze their effects on the economy. After studying this chapter, you should be able to:Define monopoly.Explain the four main reasons monopolies arise. Explain how a m
3、onopoly chooses price and output.Use a graph to illustrate how monopoly affects economic surplus.Discuss government policies toward monopoly.LEARNING OBJECTIVES123453of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrus
4、t PolicyIs Any Firm Ever Really a Monopoly?LEARNING OBJECTIVE1Monopoly The only seller of a good or service that does not have a close substitute.A narrow definition of monopoly is that a firm is a monopoly if it can ignore the actions of other firms.A broad definition of monopoly is that a firm is
5、a monopoly if it can retain economic profits in the long run.4of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyTime Warner Cable, a division of the Time Warner Company, operates cable televisions systems in
6、the U.S. As the only provider of cable television in Manhattan it has a monopoly in this market.There are few monopoly firms in the U.S. because when a firm earns an economic profit, other firms have an incentive to enter the market. 5of 30 2006 Prentice Hall Business Publishing Economics R. Glenn H
7、ubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyWhere Do Monopolies Come From?LEARNING OBJECTIVE2Barriers to entry may be high enough to keep out competing firms for four main reasons: 1. Government blocks the entry of more than one firm into a market.2. One firm has con
8、trol of a key raw material necessary to produce a good.3. There are important network externalities in supplying the good or service.4. Economies of scale are so large that one firm has a natural monopoly.6of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrie
9、n1sted.CHAPTER 14: Monopoly and Antitrust PolicyWhere Do Monopolies Come From?Entry Blocked by Government Action1. By granting a patent or copyright to an individual or firm, which gives it the exclusive right to produce a product.2. By granting a firm a public franchise, which makes it the exclusiv
10、e legal provider of a good or service.7of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyThe End of the Christmas Plant Monopoly14 - 2At one time, the Ecke family had a monopoly on growing poinsettias, but ma
11、ny new firms entered the industry.8of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyWhere Do Monopolies Come From?PATENTS AND COPYRIGHTSPatent The exclusive right to a product for a period of 20 years from t
12、he date the product was invented.Copyright The legal right of the creator of a book, film, or piece of music to exclusive right to the creation.PUBLIC FRANCHISESPublic franchise A designation by the government that a firm is the only legal provider of a good or service.CONTROL OF A KEY RESOURCEAnoth
13、er way for a firm to become a monopoly is by controlling a key resource. This happens infrequently because most resources are widely available from a variety of suppliers.9of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and An
14、titrust PolicyWhere Do Monopolies Come From?Network ExternalitiesThere are important network externalities in supplying the good or service.Network externalities exist in the consumption of a product if the value of the product increases with the number of people who are using it.Some economists arg
15、ue that network externalities are a barrier to entry, but other economists believe dominant positions by firms reflect their efficiency in satisfying consumer preferences.10 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and
16、Antitrust PolicyWhere Do Monopolies Come From?Natural MonopolyNatural monopoly A situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.14 - 1Average Total Cost Curve for a Natural Monopoly11 of 30 2006 P
17、rentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyHow Does a Monopoly Choose Price and Output?LEARNING OBJECTIVE3Marginal Revenue Once AgainRemember that when a firm cuts the price of a product, one good thing and one ba
18、d thing happens: The good thing: It sells more units of the product. The bad thing: It receives less revenue from each unit than it would have received at the higher price.12 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and
19、 Antitrust PolicyHow Does a Monopoly Choose Price and Output?Marginal Revenue Once Again14 - 2Calculating a Monopolys Revenue13 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyHow Does a Monopoly Choose Pri
20、ce and Output?Profit Maximization For a Monopolist14 - 3Profit-Maximizing Price and Output for a Monopoly14 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust Policy14 - 2LEARNING OBJECTIVE3Finding Profit Maximizing
21、 Price and Output for a MonopolistPRICE QUANTITYTOTAL REVENUEMARGINAL REVENUE(MR = TR/Q)TOTAL COSTMARGINALCOST(MC = TC/Q)$17 3 $51 $56 $16 4 64 $13 63 $7$15 5 75 11 71 8$14 6 84 9 80 9$13 7 91 7 90 10$12 8 96 5 101 11Dont Assume That Charging a Higher Price Is Always More Profitable For a Monopolist
22、15 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyDoes Monopoly Reduce Economic Efficiency?LEARNING OBJECTIVE4Comparing Monopoly and Competition14 - 4What Happens If a Perfectly Competitive Industry Become
23、s a Monopoly?16 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyDoes Monopoly Reduce Economic Efficiency?Measuring the Efficiency Losses from Monopoly14 - 5The Inefficiency of MonopolyWe can summarize the e
24、ffects of monopoly as follows:1. Monopoly causes a reduction in consumer surplus.2. Monopoly causes an increase in producer surplus.3. Monopoly causes a deadweight loss, which represents a reduction in economic efficiency.17 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, An
25、thony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyDoes Monopoly Reduce Economic Efficiency?How Large Are the Efficiency Losses Due to Monopoly?Market power The ability of a firm to charge a price greater than marginal cost.Market Power and Technological ChangeThe introduction of new
26、 products requires firms to spend funds on research and development. Because firms with market power are more likely to earn economic profits, they are also more likely to introduce new products.18 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.C
27、HAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward MonopolyLEARNING OBJECTIVE5Because monopolies reduce consumer welfare and efficiency, most governments regulate their behavior. Collusion An agreement among firms to charge the same price, or to otherwise not compete.Antitrust Laws and
28、 Antitrust EnforcementAntitrust laws Laws aimed at eliminating collusion and promoting competition among firms.19 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward MonopolyAntitrust L
29、aws and Antitrust EnforcementImportant U.S. Antitrust Laws14 1LAW DATE PURPOSESherman Act 1890 Prohibited “restraint of trade,” including price fixing and collusion. Also outlawed monopolization.Clayton Act 1914 Prohibited firms from buying stock in competitors and from having directors serve on the
30、 boards of competing firms.Federal Trade Commission Act1914 Established the Federal Trade Commission (FTC) to help administer antitrust laws.Robinson-Patman Act 1936 Prohibited charging buyers different prices if the result would reduce competition.Cellar-Kefauver Act 1950 Toughened restrictions on
31、mergers by prohibiting any mergers that would reduce competition.20 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward MonopolyMergers: The Trade-off between Market Power and Efficienc
32、yHorizontal mergers Mergers between firms in the same industry.Vertical mergers Mergers between firms at different stages of production of a good.21 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernmen
33、t Policy toward MonopolyMergers: The Trade-Off between Market Power and Efficiency14 - 6A Merger That Makes Consumers Better Off22 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward Mo
34、nopolyThe Department of Justice and the Federal Trade Commission Merger Guidelines1. Market definition2. Measure of concentration3. Merger standards23 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernm
35、ent Policy toward MonopolyThe Department of Justice and the Federal Trade Commission Merger GuidelinesMEASURE OF CONCENTRATION 1 firm, 100% market share (a monopoly): HHI = 1002= 10,000 2 firms, each with a 50% market share: HHI = 502+ 502= 5,000 4 firms, with market shares of 30%, 30%, 20%, and 20%
36、:HHI = 302+ 302+ 202+ 202= 2,600 10 firms, each with market shares of 10%: HHI = 10(102) = 1,00024 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward MonopolyThe Department of Justice
37、and the Federal Trade Commission Merger GuidelinesMERGER STANDARDS Post-Merger HHI Below 1,000. These markets are not concentrated, so mergers in them are not challenged. Post-Merger HHI Between 1,000 and 1,800. These markets are moderately concentrated. Mergers that raise the HHI by less than 100 w
38、ill probably not be challenged. Mergers that raise the HHIby more than 100 may be challenged. Post-Merger HHI Above 1,800. These markets are highly concentrated. Mergers that increase the HHI by less than 50 points will not be challenged. Mergers that increase the HHI by50 to 100 points may be chall
39、enged. Mergers that increase the HHI by more than 100 points will be challenged.25 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyGovernment Policy toward MonopolyRegulating Natural Monopolies14 - 7Regulat
40、ing a Natural Monopoly26 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyWhy Im Filing Chapter 1127 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPT
41、ER 14: Monopoly and Antitrust PolicyAntitrust lawsCollusionCopyrightHorizontal mergersMarket powerMonopolyNatural monopolyNetwork externalitiesPatentPublic franchiseVertical mergers28 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Mon
42、opoly and Antitrust PolicyFRQ1:Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal cost? Why do most regulatory agencies require natural monopolies to charge a price equal to average cost instead?29 of 30 2006 Prentice Hall Business Publishing Eco
43、nomics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyAn:Charging a price equal to marginal cost means that output will equal the level at which marginal cost equals marginal benefit, which is the efficient point. However, charging this price would mean that t
44、he natural monopoly would earn a negative profit. If the regulator sets price to equal average cost instead, some efficiency will be lost but the natural monopoly will stay in business and earn a normal economic profit. 30 of 30 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick OBrien1sted.CHAPTER 14: Monopoly and Antitrust PolicyEnd!
