Chapter 15 - Using noncompetitive market models. In this chapter students will be able to: Determine the relative magnitude of the deadweight loss of monopoly, ascertain the extent to which, if any, monopolies suppress innovations, explore whether government intervention can promote efficiency in the case of natural monopoly,. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 15: Using Noncompetitive Market Models Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Determine the relative magnitude of the deadweight loss of monopoly. Ascertain the extent to which, if any, monopolies suppress innovations. Explore whether government intervention can promote efficiency in the case of natural monopoly. Explore the concepts of iterated dominance and commitment in the context of game theory models. THE SIZE OF THE DEADWEIGHT LOSS OF MONOPOLY Determine the relative magnitude of the deadweight loss of monopoly. Figure - The Size of the Deadweight Loss of Monopoly Why Are the Estimates of the Deadweight Loss Not Large? Estimates of the deadweight loss of monopoly in relation to GNP are not large. Reasons: Deadweight loss is compared to the size of the whole economy (GNP), not to the size of the . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 15: Using Noncompetitive Market Models Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Determine the relative magnitude of the deadweight loss of monopoly. Ascertain the extent to which, if any, monopolies suppress innovations. Explore whether government intervention can promote efficiency in the case of natural monopoly. Explore the concepts of iterated dominance and commitment in the context of game theory models. THE SIZE OF THE DEADWEIGHT LOSS OF MONOPOLY Determine the relative magnitude of the deadweight loss of monopoly. Figure - The Size of the Deadweight Loss of Monopoly Why Are the Estimates of the Deadweight Loss Not Large? Estimates of the deadweight loss of monopoly in relation to GNP are not large. Reasons: Deadweight loss is compared to the size of the whole economy (GNP), not to the size of the monopolized sector. There are few, if any, pure monopolies in the . We cannot measure the restriction in output in any industry, only actual output. Other Possible Deadweight Losses of Monopoly Two undesirable consequences of monopoly: Restriction of output Redistribution of income in favor of the owner of the monopoly Other effects: In the absence of competition with other firms, the monopolist is under less pressure to minimize (production) cost. A monopoly may incur other costs (in addition to production costs) to ensure continuation of its monopoly power. DO MONOPOLIES SUPPRESS INVENTIONS? Ascertain the extent to which, if any, monopolies suppress innovations. Do Monopolies Suppress Inventions? Worthwhile invention: one that allows a firm to produce a higher-quality product at an unchanged cost or to produce the same-quality product at a lower cost. Different industry structures: Competitive conditions: initial firm can gain until other firms copy it A worthwhile
