(9) Monopoly

Total Video Time: 92 minutes

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Introduction

In the last module, we looked at our first market structure: perfect competition. In this module we look at the polar opposite: monopoly. We go through the profit-maximization decision for a monopolist and then see how the price a monopolist charges depends on the price elasticity of demand. After examining the social welfare implications of monopoly, we walk through a few examples of changes in a monopoly market. Finally, we discuss price discrimination and talk about the implications this has for consumers. We discuss the possibility of reimporting drugs from Canada, financial aid in higher education, and a few other examples of price discrimination. The ultimate conclusion is that price discrimination increases social welfare because it allows monopolists to produce more output than if they cannot price discriminate; it will make some consumers better off and may or may not make other consumers worse off.

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Video 9.1: Monopoly Profit-Maximization (15 min)

This video walks through the Marginal Revenue curve for a monopolist and then shows how to find the profit-maximizing levels of output and price.

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Video 9.2: Monopoly Prices and Demand Elasticity (10 min)

This video explains how the price elasticity of demand determines how far above marginal cost a monopolist will mark up its price.

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Video 9.3: Social Welfare Analysis of Monopoly (10 min)

This video explains the deadweight loss of monopoly, caused by the firm not producing as much output as we would like. It also discusses the benefits of monopoly and other costs/benefits of monopoly.

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Video 9.4: Monopoly Examples (9 min)

This video walks through changes in demand, marginal costs and fixed costs for a monopoly and compares those outcomes to what would occur in a perfectly competitive industry. (Note: I make a misstatement in the very last sentence of this video. It should say that when there is a lump-sum tax imposed on a monopolist, it is ultimately paid entirely by the firm and not by consumers.)

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Video 9.5: Price Discrimination (11 min)

This video discusses how price discrimination can reduce the allocative inefficiency that typically occurs in a monopoly. It sets out the necessary conditions for price discrimination and uses an example of the Playstation 3 game system to motivate the concept.

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Video 9.6: Personal Pricing (9 min)

This video explains what happens if a monopolist can determine how much each individual person is willing to pay for the product and why the outcome is actually allocatively efficient.

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Video 9.7: Group Pricing (18 min)

This video discusses third-degree price discrimination and discusses the fairness of charging different groups of people different prices, based either on their age or gender. It discusses the difference between drug prices between U.S. and Canada and what would happen if drug companies had to charge the same price in both markets. Finally, it explains why Al Gore wants your dog to suffer in pain. (Just kidding…a little bit.)

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Video 9.8: Natural Monopoly (10 minutes)

This video discusses what a natural monopoly is, as well as several different ways of regulating it and their effects on the firm and consumers. One of these is not in your textbook (price cap regulation) but you are responsible for understanding it.

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