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Room 1 monopoly: Samuel

Room 2 olibopoly: Lea, Vicky, Max

You can talk to each other and agree on what you would charge General Room: all the others

No talking No interaction

Now take a piece of paper and quote your price!

You are producers of Schokobons in 3 markets:

I will buy from you 1 Schokobon and I am willing to pay

10 Cent and 50 Cent for 1 Bon

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Why do firms compete?

4.4 Competition

What are the characteristics of a competitive market?

What are the different market structures?

What is Cournot Point?

What does it mean for consumers?

What is the role of politics?

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Market structure

Many suppliers Single large supplier

with identical products Few large suppliers

PERFECT COMPETITION

Monopoly or Oligopoly

The characteristics of a market include how many firms compete to supply it, the degree of competition between them, the extent of their product differentiation, and the ease with which new firms can enter the market to compete with them

Individual firms have no control over

market price

The monopoly firm can determine

market price

Number of firms supplying market rising : falling

Price s

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Monopoly and Oligopolies

A single firm (monopoly) or group of firms (oligopoly) acting together with sufficient market power to restrict competition and set the market price is a monopoly

A pure monopoly controls the total supply of a product to a market

A monopoly may restrict supply to force up the market price and earn abnormal profits

i.e. excess profits above what they

would be if there was competition

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Monopolyprice = Marginal Revenue = Marginal Cost

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Key Players on the global stock markets (Dow Jones, Nasdaq, …)

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How monopolies and oligopolies can restrict competition

Artificial barriers to entry may be used by a monopoly to restrict competition unfairly by:

•using predatory or destruction pricing to force rivals out of business

•threatening major suppliers that it will stop buying from them if they supply rival firms

•threatening retailers to stop supplying them with their product if they stock rival products

But:

Natural barriers to entry are not necessarily bad. They occur because large-scale production is often more efficient.

Smaller firms may be unable to compete with larger firms on costs and revenues because:

large firms may enjoy significant economies of scale that give them a natural monopoly

• small firms cannot match the capital investment needed for large-scale production (Austrian Rail)

• large firms may have built up significant customer loyalty over time

• some large firms may have a legal monopoly because they have patents to protect their innovative

products and technologies from being copied (Pharmacy)

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Problems with monopolies

A monopoly may abuse its market power to:

restrict market supply to force up market price restrict competition and consumer choice

cut product quality to save costs In addition, there may be:

x-inefficiency

A monopoly may be poorly managed and inefficient because it does not face any competition

a need for regulation

Governments may have to use resources to investigate and punish abuses of market power

Swisscom may be fined for overcharging

customers Regulator promises t o end energy suppliers mo nopoly

EU investigates IBM over

‘abuse’ of market power

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Regulating competition

Competition policy refers to measures governments use to control the behaviour of firms acting anti-

competitively and against the interests of consumers (1) Regulating the prices and service levels of

monopolies

(2) Imposing fines on firms that abuse their market power

(3) Forcing monopolies to break up into smaller, competing firms

Consumer protection laws protect consumers from exploitation and harmful

business activities, e.g. it is an offence to sell goods or services which are unsafe

or in an unsatisfactory condition or to mislead consumers about prices and products

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Key Players on the global stock Market

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Not all monopolies are bad

• It is a more efficient producer with lower costs than smaller firms

• It faces competition from firms overseas and consumers are able to choose products that are close substitutes

• Its market is contestable, i.e.

there are few or no barriers to entry

• It invests its profits in new product developments

A firm that is a monopoly may still act competitively and be good for consumers if:

▲ Some revolutionary products, like the jumbo jet and photocopier,

may never have been developed if the business organizations that

invented them were unable to enjoy monopoly profits. Abnormal profits

were a reward for their significant investment risks.

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• Chose an industry with a few key players or monopolists:

(Google, Amazon, Microsoft, Telcos, Apple, Samsung, Pfizer, Moderna, Astra Zeneca, or local ones: Rosenbauer, Women Care Products...) and

https://www.investopedia.com/ask/answers/121514/what-are-some-current-examples-oligopolies.asp

• Write an article on Monopolies, Oligopolies on your website

(markets). How did those firms become a dominant player? How are they acting? What are the consequences?

• Use phrases like:

„Mergers & Acquisition, Pricing, Cournot Point, Anti Trust regulations, Collusion, Patents, Consumers, Research &

Development, Deregulation, etc.“

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Assignment:

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Typical Industries where you can find Oligopolies

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