30 votes
Accepted

Do companies have non compete agreements between each other?

This is known as dividing markets or market allocation, and it is against the law in the US, the EU, and I imagine in most countries with antitrust laws.
user avatar
  • 26.2k
22 votes
Accepted

Why is collective bargaining by a group of employees not the same thing as price-fixing?

This is more of an elaboration of The Almighty Bob's answer: It is true that if we start from a competitive market (i.e. large numbers of buyers and sellers), then granting market power to sellers (e....
user avatar
  • 16.6k
18 votes
Accepted

Monopolies are just a mathematical misunderstanding

$PQ(P)=TR$, Total Revenue. $\frac{∂Q}{∂P}P+Q$ is the derivative of $PQ(P)$ with respect to $P$. $MR$, Marginal Revenue, is the derivative of $TR$ with respect to $Q$. So in general $\frac{∂Q}{∂P}P+...
user avatar
  • 6,813
13 votes

Why is collective bargaining by a group of employees not the same thing as price-fixing?

I think your question has two parts: Is a labor union a cartel? Is a labor union therefore illegal? Let me give you the quick answer to both: 1) yes, 2) no. The longer version is the following: ...
user avatar
11 votes
Accepted

Price discrimination- how much is optimal?

Varian has a paper on Price Discrimination and Social Welfare in which he gives some necessary and sufficient conditions for (third degree) price discrimination to increase welfare. A necessary ...
user avatar
  • 16.6k
11 votes
Accepted

Has monopoly theory incorporated network effects as a source of monopoly?

Here's a solid example of it in formal literature, with about 1k citations: Competition with Switching Costs and Network Effects by Joseph Farrell and Paul Klemperer The general thought of the ...
user avatar
10 votes

Has monopoly theory incorporated network effects as a source of monopoly?

Even four decades ago, there were some references around, see for instance: Katz Michael L. and Carl Shapiro, 1985, "Network Externalities, Competition, and Compatibility," American Economic ...
user avatar
  • 2,552
9 votes

Price discrimination- how much is optimal?

Price discrimination is generally welfare ambiguous. Basic example: A monopoly can price discriminate between two market segments. In segment A, there is one consumer with a willingness to pay of $\$...
user avatar
  • 2,167
9 votes
Accepted

Can destruction be profitable?

It can be profitable for the monopolist to do so. For the conventional producer who is a price taker the profit objective function looks like this: $$\max_{q} \Pi^c $$ where $\Pi^c = P \cdot q - C(q)$....
user avatar
  • 15.8k
6 votes

Why is AC = MC in the monopoly?

Suppose the marginal cost is constant and equal to $c$, that fixed costs are $K>0$, and that revenue is $R(q)$. You seem to understand that MR=MC must be true for profits to be maximized: $R'(q)=c$....
user avatar
  • 16.6k
6 votes

Can destruction be profitable?

Cannibalization Assuming that the [near] expired goods cannot be sold at full cost anymore, offering them for sale at a significant discount (instead of destroying them) will compete with your own ...
user avatar
  • 488
6 votes

Why don't consumers subsidize monopolies?

As you pointed out, the problem of inefficient supply by a profit maximizing monopolist can be solved via subsidizing the monopolist to increase his marginal revenue. The subsidy can be paid by the ...
user avatar
  • 1,822
6 votes
Accepted

Can marginal revenue be increasing?

It is perfectly consistent for the marginal revenue to increase in $q$, even if the demand curve decreases. Marginal revenue is $$p(q)+ q p'(q).$$ The first term says "if I sell one extra unit then ...
user avatar
  • 16.6k
5 votes
Accepted

Is there a class of demand functions that deliver equal surplus to consumers and a monopolist?

We have that $$D(p^*,\mathbf{a}) = -\frac {d}{dp^*}\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp,$$ $$\Rightarrow \text{PS}(p^*) = -\text{CS}'(p^*)p^* \tag{1}$$ So $$\text{PS}(p^*)= \text{CS}(p^*) \...
user avatar
5 votes

How can the abuses of monopoly power lead to market failure?

First, let's be clear what we mean by abuse of dominance: this is when a firm is a monopoly or near-monopoly, and attempts to use that position in order to perpetuate or enhance its dominance of the ...
user avatar
  • 16.6k
5 votes
Accepted

Why is the Marginal Cost (MC) of a monopoly horizontal

That is basically an assumption here. Often in monopoly problems we assume constant marginal costs (i.e. a linear cost function) to keep things simple. In that case the Marginal Cost Curve is ...
user avatar
  • 5,414
5 votes

Monopoly and Taxes (Nicholson Exercise)

First let's look at the specific tax. The profit is $$\pi_s=[P(q)-\tau_s]q-C(q).$$ Differentiating to establish the first-order condition: $$P'(q)q+P(q)-\tau_s-C'(q)=0.$$ If we write $A=\tau_s q$ for ...
user avatar
  • 16.6k
5 votes

Monopolies are just a mathematical misunderstanding

To complement @AdamBailey to-the-point answer, the purpose of this post was to alert interested readers to the consequences of changing decision-variables in our thinking. We are accustomed to think ...
user avatar
5 votes
Accepted

Monopoly equilibrium with a completely inelastic demand

Perfectly inelastic demand means quantity demanded is $q$ irrespective of the price. If producing quantity $q$ costs $c$ then the monopolist's problem is $$\max_p \{pq-c\}.$$ This problem is not ...
user avatar
  • 16.6k
5 votes
Accepted

Why are so many pharmaceutical drugs so expensive?

Prices are high because drug firms have monopoly power, granted to them by the patent system. In addition the demand for the drugs is fairly inelastic because once you fall seriously ill you're often ...
user avatar
  • 2,330
5 votes
Accepted

Why there is no supply on monopoly markets?

The argument is that the monopolist's decision is based on the demand curve (in effect matching marginal total revenue to marginal cost) so is not independent of the demand curve, and in that sense ...
user avatar
  • 4,674
4 votes
Accepted

For what demand function is a monopoly most harmful?

An arbitrarily large ratio should occur with demand curve $P=\begin{cases} \frac{1}{Q} & \text{if } Q>1 \\ 2-Q & \text{if } Q\leq 1 \\ \end{cases}$. The monopolist prices at $P=1$, but ...
user avatar
4 votes

How does the monopoly's deadweight loss affect market surplus and the economic pie?

Consider the following two examples: There is a consumer who is willing to pay 50 dollars for a good. (Reservation price is 50.) There is a seller who is willing to sell for 30 dollars. (Marginal ...
user avatar
  • 26.2k
4 votes

The Backward Bending Supply Curve, Asymmetric Information, and Monopoly

This definitely is not a complete answer. But I can imagine the case of increasing returns to scale. Or natural entry barrier. Increasing returns to scale is often discussed in international trade ...
user avatar
4 votes
Accepted

What are good books about monopolies and market failures?

Your question is quite broad in the sense that various forms of market failure cover a significant portion of all of microeconomics. I presume you have already looked in a general undergraduate micro ...
user avatar
  • 16.6k
4 votes
Accepted

Why does demand curve shift in, in a monopolistic competitive market?

Demand for existing firms' product shifts in because the entering firms attract some of the users.
user avatar
  • 1,105
4 votes

Why is the Marginal Cost (MC) of a monopoly horizontal

While principles level textbooks do usually assume that MC is constant for the monopolist for simplicity, by no means does it have to be constant. It may indeed be upward-sloping. Also, both the long-...
user avatar
4 votes
Accepted

$p(0)\geq c'(0)$ in monopoly

You intuition about the assumption is correct. Given the usual assumptions of downward sloping demand curve ($p'(q)<0$) and non-decreasing supply curve ($c''(q)\ge0$), if $p(0)<c'(0)$, then ...
user avatar
  • 14.4k
4 votes

What does liberal economic theory say about monopolies?

Monopoly and competition are one of the central topics in microeconomics, so there many theories on the source of monopoly, and they are not universally applicable. Government intervention is ...
user avatar
  • 230
4 votes
Accepted

Is there any research, theory, or anything which shows how much of a market has to be in power of a few companies to be a force against free market?

The quote in the question isn't really rigorous about what a free market is, but it talks about monopolies and artificial scarcities, so I am interpreting the efficient outcome with price equal to ...
user avatar
  • 16.6k

Only top scored, non community-wiki answers of a minimum length are eligible