Market Structures 1 - Monopolies

The features, equilibirum, transport relevance of monopolies as well as natural monopolies 

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  • Created by: TessAni
  • Created on: 18-01-13 15:52
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  • Monopolies
    • Features
      • Supernormal profit is possible in both the long run and short run
      • High barriers to entry
      • Key problem - whether firms can command a so-called monopoly price
      • Competition Act aims to reduce anti-competitive behaviour
      • Companies can act as monopolies despite there being more than one firm
      • Price Discrimination
        • Monopolies
          • Features
            • Supernormal profit is possible in both the long run and short run
            • High barriers to entry
            • Key problem - whether firms can command a so-called monopoly price
            • Competition Act aims to reduce anti-competitive behaviour
            • Companies can act as monopolies despite there being more than one firm
            • Price Discrimination
              • Where  a monopolists charges different prices for the same product in different markets
              • Rail  passenger market - commuters v. off peak (dependent on PED)  or airlines and time (how far ahead you book)
          • Equilibrium
            • Will choose the profit maximisation level - where MC = MR
          • Natural Monopolies
            • Where a monopolist has an overwhelming cost advantage  - ownership of resources for instance
            • Fixed costs very high proportion of total costs
            • Output increases average costs fall - offering substantial benefits to be gained from economies of scale
            • If it behaves competitively - with low prices - then this can be loss making so subsidies are needed or it can be public sector completely
            • Transport Relevance
              • Railways - new infrastructure is a waste of resources + accessibility
              • Govt. gives annual payment to  17/20 franchises because they are essential
              • There are some areas of true competition but even these have restrictions as to where trains can pick up and drop off passengers - East Coast Main Line
        • Where  a monopolists charges different prices for the same product in different markets
        • Rail  passenger market - commuters v. off peak (dependent on PED)  or airlines and time (how far ahead you book)
    • Equilibrium
      • Will choose the profit maximisation level - where MC = MR
    • Natural Monopolies
      • Where a monopolist has an overwhelming cost advantage  - ownership of resources for instance
      • Fixed costs very high proportion of total costs
      • Output increases average costs fall - offering substantial benefits to be gained from economies of scale
      • If it behaves competitively - with low prices - then this can be loss making so subsidies are needed or it can be public sector completely
      • Transport Relevance
        • Railways - new infrastructure is a waste of resources + accessibility
        • Govt. gives annual payment to  17/20 franchises because they are essential
        • There are some areas of true competition but even these have restrictions as to where trains can pick up and drop off passengers - East Coast Main Line

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