Who’s Presenting?

Estante Felix Francisco Galvez Godoy

GROUP LEADER

Hulleza Iligan Macalino Macasieb

MANAGE REPORTERS
Monopoly
GROUP 1

1 2 3 4 5
1
Monopoly
- Is a market structure that consists of only one seller or
producer.

- Limits available substitutes for its product and creates

barriers for competitors to enter the marketplace.

- Can lead to unfair consumer practices. Some monopolies

such as those in the utility sector are government regulated.

MONOPOLY Part 1
2
Understanding
monopoly
A monopoly is a business that is
characterized by a lack of competition
within a market and unavailable substitutes
for its product. Monopolies can dictate price
changes and create barriers for competitors
to enter the marketplace.

MONOPOLY Part 2
 Why monopolies

3
arises?
- Because of the lack of competition, monopolies tend to earn significant economic
profits. These profits should attract vigorous competition.

- Barriers to entry are the legal, technological, or market forces that discourage or
prevent potential competitors from entering a market. There are two types of monopoly,
based on the types of barriers to entry they exploit. One is a natural monopoly, where
the barriers to entry are something other than legal prohibition. The other is a legal
monopoly, where laws prohibit (or severely limit) competition.

- Barriers to entry prevent or discourage competitors from entering the market. These
barriers include: economies of scale that lead to natural monopoly, control of a physical
resource, legal restrictions on competition, patent, trademark and copyright protection,
and practices to intimidate the competition like predatory pricing. Intellectual property
refers to the legally guaranteed ownership of an idea, rather than a physical item.

MONOPOLY Part 3
 How monopolies make

4
production and pricing
decisions
“Profit Maximization Function for Monopolies

- Monopolies set marginal cost equal to marginal revenue in order to

maximize profit. Higher prices (except under the most extreme conditions)
mean lower sales. Therefore, monopolies must make a decision about where
to set their price and the quantity of their supply to maximize profits. They
can either choose their price, or they can choose the quantity that they will
produce and allow market demand to set the price.

- Since costs are a function of quantity, the formula for profit maximization is
written in terms of quantity rather than in price.

- The first-order condition for maximizing profits in a monopoly is 0=∂q=p(q)

+qp′(q)−c′(q), where q = the profit-maximizing quantity.

- A monopoly’s profits are represented by π=p(q)q−c(q), where revenue = pq

and cost = c.

MONOPOLY Part 4
5
Monopoly production
point
- Like non-monopolies, monopolists will produce the at the quantity
such that marginal revenue (MR) equals marginal cost (MC).
However, monopolists have the ability to change the market price
based on the amount they produce since they are the only source
of products in the market. When a monopolist produces the quantity
determined by the intersection of MR and MC, it can charge the
price determined by the market demand curve at the quantity.
Therefore, monopolists produce less but charge more than a firm in
a competitive market.

- A monopoly, unlike a perfectly competitive firm, has the market all

to itself and faces the downward-sloping market demand curve.

- Graphically, one can find a monopoly’s price, output, and profit by

examining the demand, marginal cost, and marginal revenue
curves.

MONOPOLY Part 5
5
MONOPOLY
PRICING AND
many PRODUCTION
In a perfectly competitive market, there are
producers and consumers, no barriers
to exit and entry into the market, perfectly
homogenous goods, perfect information, and
well-defined property rights.

MONOPOLY Part 6
 Welfare cost of

3
- The Welfare Cost of Monopoly is when a monopolist elects to reduce

monopolies
the output of a good and causes the total surplus of that product to be
lower than it otherwise would be if it were traded in a perfect market, it
creates a loss. This is known as the welfare cost of monopoly.

- The welfare cost of monopoly is measured by the area on a graph

between the demand curve and the marginal cost curve for the units
that, due to monopoly output limitations, are no longer traded. The
welfare cost of monopoly signifies:

MONOPOLY Part 7
 Price

3 discrimination
Price discrimination in a monopoly is a practice of charging different
prices for the same product. Monopolies usually have more control
over suppliers than regular sellers, which means they can significantly
influence the suppliers’ selling prices. Monopolists can also set higher
prices to increase profit when the supply is low. They require suppliers
to cooperate with them to help manage costs and increase gains. For
example, when companies purchase intermediate or raw materials
from suppliers in different markets, it can lower prices for consumers.

MONOPOLY Part 8
 Examples of price

3
Here are some examples of price discrimination:

discrimination
Personal price discrimination - Personal price discrimination may refer to price discrimination
based on the individual characteristics of customers. This type of price discrimination depends
on the consumers’ income level and willingness to pay for the product.

Geographic price discrimination - Geographical price discrimination can be the difference in a

product or service price based on location. It occurs when prices for goods or services are
higher in some areas and lower in others.

Time or seasonal price discrimination - Price discrimination by time or season can refer to
charging different rates for different times or seasons. A monopoly can practice this form of
discrimination during peak seasons when demand for a product is higher than during the off-
season.

MONOPOLY Part 12
3
Benefits of price
Increases profit - Price discrimination typically helps increase the monopoly firm’s profit

discrimination
by maximizing its total revenue. A monopolist charges some customers higher prices rather
than a uniform fee for all buyers. Price discrimination among customers with inconsistent
demands can minimize the risk of setting up a uniformly high price.

Increases customer satisfaction - Customers usually associate a higher price with an

excellent customer experience. Price discrimination may increase buyers’ loyalty because
the firm can charge different prices for each of them, giving a few premium experiences.

Concentrates on core market segments - Price discrimination encourages monopolists

to focus on marketing their products and services towards specific groups of people. It is
usually more efficient than working to fulfil everyone’s expectations in the market.

MONOPOLY Part 9
3
Benefits of price
Increases investments - Price discrimination encourages monopolists to make more

discrimination
investments, like new marketing efforts, to reach their target market. Investment projects
can generate more revenue and increase a monopoly’s profits.

Empowers consumers - Price discrimination can empower consumers because they may
have the freedom to choose what they pay for products. It allows consumers to determine
their priorities of price, quality, and other aspects of choice. A monopolist can control the
price of its product or service and manage the consumer’s demand.

Controls demand - Monopolies also use price discrimination to manage the demand for a
product or service. For example, transport services such as taxis can be more expensive
during the rush hours to manage demand.

MONOPOLY Part 10
 Types of price

3
Price discrimination can vary depending on different markets. The main types of price discrimination include:

discrimination
First-degree price discrimination - First-degree price discrimination usually refers to charging the clients the maximum
price they can pay for a product or service. It usually covers all individual variations in demand and supply. The
effectiveness of first-degree price discrimination can depend on whether the company can accurately determine the
maximum price customers are willing to pay.

Second-degree price discrimination - In second-degree price discrimination, monopolists can charge different prices
for their products and services. It is more common in the retail industry, such as buying items in bulk at a discount.
Second-degree price discrimination helps monopolies reach a larger part of the market. It may also increase customer
loyalty.

Third-degree price discrimination - Third-degree price discrimination may refer to a monopoly subdividing an entire
market into consumer groups. The submarket groups can vary by age, location, and gender. Monopolists using third-
degree price discrimination focus on the choice of the entire group rather than the choice of individual consumers. They
charge each submarket differently for a product or service.

MONOPOLY Part 11
Monopolistic competition

3
- Monopolistic competition exists when many companies offer competing
products or services that are similar, but not perfect, substitutes.

- Monopolistic competition occurs when many companies offer products that

are similar but not identical.

- Firms in monopolistic competition differentiate their products through pricing

and marketing strategies.

- Barriers to entry, or the costs or other obstacles that prevent new competitors
from entering an industry, are low in monopolistic competition.

MONOPOLY Part 13
3
Understanding Monopolistic
competition
Monopolistic competition exists between a monopoly
and perfect competition, combines elements of each,
and includes companies with similar, but not identical,
product offerings where the term perfect competition
refers to a theoretical market structure. Although
perfect competition rarely occurs in real-world markets,
it provides a useful model for explaining how supply
and demand affect prices and behavior in a market
economy.

MONOPOLY Part 14
 Characteristics of monopolistic

3
competition
Low Barriers to Entry - In monopolistic competition, one firm does not monopolize the market and
multiple companies can enter the market and all can compete for a market share. Companies do not
need to consider how their decisions influence competitors so each firm can operate without fear of
raising competition.

Product Differentiation - Competing companies differentiate their similar products with distinct
marketing strategies, brand names, and different quality levels.

Pricing - Companies in monopolistic competition act as price makers and set prices for goods and
services. Firms in monopolistic competition can raise or lower prices without inciting a price war, often
found in oligopolies.

Demand Elasticity - Demand is highly elastic in monopolistic competition and very responsive to price
changes. Consumers will change from one brand name to another for items like laundry detergent
based solely on price increases.

MONOPOLY Part 15
 Advantages and disadvantages of

3
monopolistic competition
Monopolistic competition provides both benefits and pitfalls for companies and consumers.

Pros
- Few barriers to entry for new companies
- Variety of choices for consumers
- Company decision-making power for prices and marketing
- Consistent quality of product for consumers

Cons
- Many competitors limits access to economies of scale
- Inefficient company spending on marketing, packaging and advertising
- Too many choices for consumers means extra research for consumers
- Misleading advertising or imperfect information for consumers

MONOPOLY Part 16

1. What is a market structure
that consists of only one
seller or producer?
A. Sole proprietorship
B. Monopoly
C. Price Discrimination
D. Competition
Summary / Info
Fact ~ Fact ~ Facts
QuestIo
2. It refers to a practice of
charging different prices for the
same product.
A. Monopoly
B. Monopolistic Competition
C. Welfare Cost
D. Price Discrimination
Summary / Info
Fact ~ Fact ~ Facts
3. It exists when many
companies offer competing
products or services that are
similar, but not perfect,
substitutes.
A. Monopolistic Competition
B. Welfare Cost
C. Price Discrimination
D. Monopoly
Summary / Info
Fact ~ Fact ~ Facts
4. _______ refers to charging the
5. _______ can be the
clients the maximum price they
difference in a product or
can pay for a product or service.
service price based on
location.
A. Geographical Price
Discrimination
A. Price Discrimination
B. Monopoly
B. Monopolistic Competition
C. Price Discrimination
C. Geographical Price
D. First Degree Price
Discrimination
Discrimination
D. First Degree Price
Discrimination

Summary / Info Summary / Info

Fact ~ Fact ~ Facts Fact ~ Fact ~ Facts

QuestIo
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