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.
- 29.6k
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+...
- 8,584
12
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 ...
- 3,477
11
votes
Accepted
Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Why does Apple have large profit margins?
I read that companies in the monopolistic competition make zero economic profit in the long term. Why would a company do that when it can maximize the profit instead?
Please give sources when you ...
- 29.6k
11
votes
Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Why does Apple have large profit margins?
Why companies choose to make zero economic profits in the long-term when it can maximize it instead?
Companies do not choose to make zero economic profits. In economics we start with assumption that ...
- 57.7k
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 ...
- 3,481
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: $R'(q)=c$....
- 17k
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 ...
- 17k
6
votes
Accepted
Monopolies on Giffen Goods
If a good exhibits Giffen behavior at a certain price level, it implies that a (slightly) higher price will result in greater demand.
The Giffen property is local, a good cannot behave as a Giffen ...
- 29.6k
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 ...
- 33.9k
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 ...
- 17k
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 ...
- 6,246
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 ...
- 17k
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 ...
- 2,373
5
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 ...
- 17k
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 ...
- 4,765
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.
- 1,135
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-...
- 69
4
votes
Can a monopoly INCREASE the market surplus compared with a competitive market?
Under standard assumptions (some of which you state in your question: no externalities, etc.), no. This follows from the First Welfare Theorem.
Perhaps there are departures from standard models that ...
- 2,156
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 ...
- 15.8k
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 ...
- 230
4
votes
Do companies have non compete agreements between each other?
Real life is more complicated than that. For example Companies A and B might be competing in the same market sector, but then collaborate on producing a new product aimed at a particular niche in the ...
- 451
4
votes
Accepted
What has been the reception of Posner & Weyl’s claim that property rights lead to market power?
In narrow sense of the word the article was definitely peer reviewed as it was published in Journal of Legal Analysis. But in this narrow sense it was most likely peer reviewed by jurists not ...
- 57.7k
4
votes
Is a Monopoly equilibrium also a Nash equilibrium?
In a somewhat degenerate way, yes. The specified demand function is a trivial case of a best response function describing the optimal quantity demanded for any given price of the monopolist. The ...
- 549
4
votes
Accepted
Consumer Surplus Graph
In perfect competition, CS would be the area of the whole triangle above $P = P_{pc}$, under the demand curve.
So the small triangle ($Q$ from $Q_m$ to $Q_{pc}$ by $P$ from $P_{pc}$ to $P_m$, under ...
- 2,259
4
votes
Accepted
Calculating deadweight loss from tax for a monopolist
If the govt. imposes a tax of $1$ per unit, then the new marginal cost becomes $2$ per unit.
Profit. Using $p \leq 20 \iff \frac{100}{q} \leq 20 \iff q \geq 5$, we have $\pi(q) = 100 - 2q$ when $q \...
- 332
4
votes
Calculating deadweight loss from tax for a monopolist
The monopolists original problem without the tax was:
$$\begin{aligned}
\max_{p,y} \quad & py(p)-c(y)\\
\textrm{s.t.} \quad & y(p)=\begin{cases} \frac{100}{p} & \text{if } p \leq 20\\ 0 &...
- 637
3
votes
Accepted
Hayek's defense of competition regulation
This article states:
In both of his seminal works in political theory,
The Constitution of Liberty and Law, Legislation and Liberty, Hayek endorsed as a legitimate function of the ...
- 8,611
3
votes
How to determine the price a monopolist will set when the demand curve the firm faces isn't known?
The monopolist is allowed to set the price. However, because his product has a perfect substitute, he can sell 0 products at prices $p>2$. He also has no incentive seting the price $p<2$, ...
- 29.6k
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