Economics for Managers" 2013-2014 M. RAYNA
and its available solutions
November 26th, 2013 / ESG MS
monopoly
YOUR "LOGO"HERE
Aymane ACHITE"Lola MAINARDIS"Woojin KIM
Unbroken
Content
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I. ‘’UNBROKEN’’ MONOPOLY? "
1. Definition of Monopoly
2. Definition of Natural Monopoly 1) Definition
2) Economic Condition : Economies of Scale
3. Cases of Natural Monopoly
Content
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II. WHY CANNOT THIS MONOPOLY BE BROKEN?
"1. Understanding of Natural Monopoly
1) Theoretical Definition
2) Natural Monopolies in Reality
2. Disadvantage
3. Advantage
Content
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III. HOW TO SOLVE IT? "
1. Acceptable Natural Monopolies
2. Natural Monopolies
with Need for Regulation
3. Can Natural Monopoly be broken?
4. Things to think about :
the Case of Microsoft’s Windows
Monopolistic Competition
Perfect"Competition
4 Categories of Competition
Oligopoly
Monopoly
Competitors
When there is only one firm in the industry
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November 26th, 2013 / ESG MS
Disadvantage of Monopoly
�13
Pm ="Price under monopoly"Pc ="Price under perfect competition
Provided the current formal definition.
First coined the term ‘Natural Monopoly’.
November 26th, 2013 / ESG MS
Richard Allen Posner(1939-)
Willam Baumol!(1922-)
History of!Natural Monopoly
Defintion of Natural Monopoly
‘‘A situation where long-run average costs would be lower if an industry were under
monopoly than it were shared between two or more competitors.’’
The situation when the cost advantage arises with increased output of a product.
DefinitionEconomies of!Scale
November 26th, 2013 / ESG MS
November 26th, 2013 / ESG MS
Theoretical Definition!of Natural Monopoly
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D ="Market demand curve"LRAC ="Long-run average cost curve
Under Monopoly!5 cents / 4 million kilowatt-hour"with one firm""Under Perfect Competition!10 cents / 4 million kilowatt-hour"with two firms
November 26th, 2013 / ESG MS
Disadvantage of Monopoly
�19
Pm ="Price under monopoly"Pc ="Price under perfect competition
Barriers to entry
Under monopoly
Lower output in higher
Unequal distribution of
Higher cost curves
Less competition
Less incentive
Disadvantage of Natural Monopoly
High risk of Bureaucracy
Consumers have no choice
November 26th, 2013 / ESG MS
ADVANTAGE - 1. ECONOMIES OF SCALE
LARGER PLANT
CENTRALISED ADMINISTRAION
AVOIDANCE OF UNNECESSARY DUPLICATION
Economies of
Scale
Larger plants
Centralised Ad.
No duplication
November 26th, 2013 / ESG MS
Advantage of!Natural Monopoly
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12
3
1. Economies of Scale
2. Possibility of lower cost curves due to more R&D and investment
3. Competition for corporate control4. Innovation and new products
4
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IT BRINGS MORE
Acceptable Monopolies
ADVANTAGES THANDISADVANTAGES…
AS LONG AS
!24November 26th, 2013 / ESG MS
YOUR.COMPANY.INFORM OR TAG LINE HERE
MICROSOFT IS A NATURAL MONOPOLY?
THINGS TO THINK ABOUT
YOUR LOGO HERE
Is the framework of natural monopoly
still effective in digital economics?