Book contents
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO PREFERENCE, CONSUMPTION, AND DEMAND
- PART THREE THE FIRM AND THE INDUSTRY
- 6 The Business Firm
- 7 Equilibrium in the Product Market – Competitive Industry
- 8 Monopolies, Cartels, and Networks
- 9 Product Quality and Product Variety
- 10 Competition Among the Few: Oligopoly and Strategic Behavior
- 11 Dealing with Uncertainty – The Economics of Risk and Information
- PART FOUR FACTOR MARKETS AND INCOME DISTRIBUTION
- PART FIVE EXCHANGE
- PART SIX ECONOMICS AND TIME
- PART SEVEN POLITICAL ECONOMY
- Answers to Selected Questions
- Name Index
- Subject Index
8 - Monopolies, Cartels, and Networks
from PART THREE - THE FIRM AND THE INDUSTRY
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO PREFERENCE, CONSUMPTION, AND DEMAND
- PART THREE THE FIRM AND THE INDUSTRY
- 6 The Business Firm
- 7 Equilibrium in the Product Market – Competitive Industry
- 8 Monopolies, Cartels, and Networks
- 9 Product Quality and Product Variety
- 10 Competition Among the Few: Oligopoly and Strategic Behavior
- 11 Dealing with Uncertainty – The Economics of Risk and Information
- PART FOUR FACTOR MARKETS AND INCOME DISTRIBUTION
- PART FIVE EXCHANGE
- PART SIX ECONOMICS AND TIME
- PART SEVEN POLITICAL ECONOMY
- Answers to Selected Questions
- Name Index
- Subject Index
Summary
A monopoly exists when an industry contains only a single firm. If a firm can drive out competitors because its costs of production are lower, it enjoys a natural monopoly. Not all monopolies, however, are natural. Governments often award monopoly privileges. Cities grant exclusive franchises to firms providing cable television. The Federal government confers patents that give inventors a monopoly for a period of years. And even without government aid, a firm may possess monopoly power owing to entry barriers – for example, if banks believe that financing a new competitor in the industry would be too risky.
In perfect competition, as studied in Chapter 7, the number of firms is large enough to make product price substantially independent of any single firm's level of output. Each competitive firm is a “price-taker.” But a monopolist, facing the entire industry demand curve, must take account of its own influence upon price: it is a “price-maker.” Geometrically, a competitive firm faces a horizontal demand curve, whereas a monopolist faces a downward-sloping demand curve.
Actually, the number of firms is economically significant only as a clue to behavior. By forming a cartel, as will be seen later in the chapter, a number of firms can sometimes get together and behave like a collective monopolist. On the other hand, even if only a single firm is active in the industry, such a firm may be unable to exploit its market as a monopolist if outside potential competitors stand ready to enter.
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- Chapter
- Information
- Price Theory and ApplicationsDecisions, Markets, and Information, pp. 221 - 256Publisher: Cambridge University PressPrint publication year: 2005