DOING NOTHING

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DOING NOTHING Each of the foregoing policies a~ed at. reducing the problem of monopoly has drawbacks. As a result, some economists argue that it is often .best for the government not to try to remedy the inefficiencies of monopoly pricing. Here is the assessment of economist George Stiller, who won the Nobel prize for his work in […]

PUBLIC OWNERSHIP

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PUBLIC OWNERSHIP The third policy used by the government to deal with monopoly is public ownership. That is, rather than regulating a.natural monopoly that is run by a private form, the government can run the monopoly itself. This solution is common in many European countries, where the government owns and operates utilities such as telephone, water, and electric companies. […]

REGULATION

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REGULATION Another way the govemment deals with the problem of monopoly is by regulating the behavior of monopolists. This solution is common in the case of natural monopolies, such as water and electric companies. These companies are not allowed to charge any price they want. Instead, government agencies regulate their prices. What price should toe government set for […]

INCREASING COMPETITION WITH ANTITRUST LAWS

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INCREASING COMPETITION WITH ANTITRUST LAWS If Coca-Cola and Pepsico wanted to merge, the deal would be closely examined by the federal government before it went into effect. The lawyers and economists- in the Department of Justice might well decide that a merger between these two large soft drink companies would make the U.S. soft drink market substantially less […]

PUBLIC POLICY TOWARD MONOPOLIES

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PUBLIC POLICY TOWARD MONOPOLIES We have seen that monopolies, in contrast to competitive markets, fail to allocate resources efficiently. Monopolies produce less than the socially desirable quantity of output and, as a result, charge prices above marginal cost. Policymakers in the government can respond to the problem of monopoly in one of four ways: • By trying to […]

THE MONOPOLY’S’ PROFIT: A SOCIAL COST?

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THE MONOPOLY’S’ PROFIT: A SOCIAL COST? It is tempting to decry monopolies for profiteering at the expense of the public. And indeed, a monopoly firm does earn a higher profit by virtue of its market power. According to the economic analysis of monopoly, however, the firm’s profit is not in itself necessarily a problem for society. The […]

THE MONOPOLY’S PROFIT: A SOCIAL COST?

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THE MONOPOLY’S PROFIT: A SOCIAL COST? It is tempting to decry monopolies for “profiteering” at the expense of the public. And indeed, a monopoly firm does earn a higher profit by virtue of its market power. According to the economic analysis of monopoly, however, the firm’s profit is not in itself necessarily a problem for society. The […]

THE DEADWEIGHT LOSS

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THE DEADWEIGHT LOSS We begin by considering what the monopoly firm would do if it were run by a benevolent social planner. The social planner cares not only about the profit earned by the firm’s owners but also about the benefits received by the firm’s consumers. The planner tries to’ maximize total surplus, which equals producer surplus (profit) […]

THE WELFARE COST OF MONOPOLY

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THE WELFARE COST OF MONOPOLY Is monopoly a good way to organize a market?·We have seen that a monopoly, in contrast to a competitive firm, charges a price above marginal cost. From the stans point of consumers, this high price makes monopoly undesirable. At the same time, however, the monopoly is earning profit from charging this high price. […]

CASE STUDY

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CASE STUDY MONOPOLY DRUGS’ VERSUS GENERIC DRUGS According to our analysis, prices are determined differently in  monopolized markets and competitive markets. A natural place to test this theory is the market for pharmaceutical drugs because this market takes on both market structures. When a firm discovers a new drug, patent laws give the firm a monopoly on the […]