Monopoly regulation SFLS online
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There are several options for regulating monopolies to address the inefficient outcomes they cause: 1. Public ownership, where the government supplies the good. This can increase output but governments are often inefficient providers. 2. Price regulation and anti-trust laws, like setting price ceilings or breaking up monopolies. While this benefits consumers, price controls are difficult to implement and anti-trust action is not always possible. 3. Doing nothing risks rent-seeking behavior where monopolies lobby for special treatment, restricting competition. However, intervention also risks unintended consequences. 4. Subsidies can increase monopoly output closer to socially optimal levels, though determining the right subsidy amount is challenging. Subsidies per
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Monopoly regulation SFLS online
- 1. I.) Perfect competition II.) Monopolistic competition III.) Oligopoly IV.) Monopoly Market Structure Some regulations
- 2. IV.) Monopoly Regulation Summary of some of the problems of monopolies... Rent Seeking is the act of obtaining special treatment by the government to create economic profit or to divert 挪用 consumer surplus or producer surplus away from others. Rent seeking does not always create a monopoly, but it always restricts competition and often creates a monopoly.
- 3. IV.) Monopoly Regulation Summary of some of the problems of monopolies... Rent Seeking Monopolies that are profit maximizing are not producing enough from a society’s perspective and they are charging too high of a price Inefficient Market Outcomes
- 4. Q P D MR MC ATC Abnormal profit - YES Productively - NO Efficient (Q = min ATC ) Allocatively - NO Efficient ( P = MC ) IV.) Monopoly Welfare Analysis ***Monopolies that are profit maximizing are not producing enough from a society’s perspective and they are charging too high of a price
- 5. IV.) Monopoly Regulation Summary of some of the problems of monopolies... Rent Seeking Though it can mean more is produced in the market, it often is seen that monopolies are taking advantage of those less fortunate Inefficient Market Outcomes Price Discrimination
- 6. 歧视 Discrimination: treating people differently based on some characteristic, e.g. race or gender. The characteristic used in price discrimination is willingness to pay (WTP): A firm can increase profit by charging a higher price to buyers with higher WTP. IV.) Monopoly Power Price Discrimination: selling the same good at different prices to different buyers. It is sometimes possible for a monopoly to charge different people difference prices
- 7. What can public policy do about the problems and issues that occur with monopolies? There are three common answers… - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation
- 8. the good is supplied by the government or by a firm owned by the government. IV.) Monopoly Regulation - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 9. Some companies can do things cheaper being large and we typically think governments can do this best (but do they?)
- 10. Some companies can do things cheaper being large and we typically think governments can do this best (but do they?)
- 11. Some companies can do things cheaper being large and we typically think governments can do this best (but do they?)
- 12. Airlines are often oligopolistic and not monopolies, but can act like monopolies and are often regulated for safety and prices
- 13. The Good: - Can prevent unfair price discrimination and monopoly profit seeking that hurts consumers and also create more output that a profit maximizing firm might not do. IV.) Monopoly Regulation the good is supplied by the government or by a firm owned by the government. - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 14. The Good: - Can prevent unfair price discrimination and monopoly profit seeking that hurts consumers and also create more output that a profit maximizing firm might not do. The Bad: - Often poorly run, no profit motive, can be very inefficient and end up performing worse. - Sometimes doing nothing is better. IV.) Monopoly Regulation - No desire to innovate even if they have the ability. the good is supplied by the government or by a firm owned by the government. Public Ownership
- 15. Rent Seeking is the act of obtaining special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others. Rent seeking does not always create a monopoly, but it always restricts competition and often creates a monopoly. IV.) Monopoly and Competition Rent Seeking behavior is just another fancy word for Corruption
- 17. Rules that control the prices that monopolies can charge or will break them into smaller companies so they will lose their monopoly power. Most common strategy used in the U.S. IV.) Monopoly Regulation - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 18. Rules that control the prices that monopolies can charge or will break them into smaller companies so they will lose their monopoly power. The Good: - Can prevent price discrimination, break up monopolies and benefit consumers and give them more choices. IV.) Monopoly Regulation - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 19. Price Regulations and Anti-Trust Laws Rules that control the prices that monopolies can charge or will break them into smaller companies so they will lose their monopoly power.The Good: - Can prevent price discrimination, break up monopolies and benefit consumers and give them more choices. The Bad: - Price controls are hard to determine and sometimes hurt monopolies too much. - Best answer is usually to break up the monopoly. IV.) Monopoly Regulation
- 20. Rent Seeking is the act of obtaining special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others. Rent seeking does not always create a monopoly, but it always restricts competition and often creates a monopoly. IV.) Monopoly and Competition Problem behavior that will come up again and again…
- 21. Two most commonly used price controls IV.) Monopoly Regulation With private companies selling durable goods, it is most common to break up the company somehow. With other private companies or even publicly owned companies that produce a service such as, utilities like water and power, price controls are usually more common. 1. Socially optimized pricing also called Marginal cost pricing 2. Fair return pricing also called Cost of Service regulations - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 22. They are owned publicly and prices are regulated to prevent abnormal profits make only a normal profit
- 23. They are owned publicly and prices are regulated to prevent abnormal profits make only a normal profit
- 24. They are owned publicly and prices are regulated to prevent abnormal profits make only a normal profit
- 25. Q P D = P MR MC ATC IV.) Monopoly Welfare Analysis *** Depending on the curves the monopoly can actually lose money in this case and can cause the monopoly to go bankrupt and shut down so this one is rarely used today. A price ceiling that it is allocatively efficient for society Socially optimal price P = MC A price that would be like if it was a perfectly competitive firm
- 26. IV.) Regulated Monopoly Q P D =P MR MC ATC *** Depending on the curves the monopoly can actually lose money in this case and can cause the monopoly to go bankrupt and shut down so this one is rarely used today. A price ceiling that it is allocatively efficient for society Socially optimal price P = MC Loss A price that would be like if it was a perfectly competitive firm
- 27. IV.) Monopoly Regulation 1. Socially optimized pricing also called Marginal cost pricing The Good: - It is allocatively efficient, more is produced at a lower price for everyone. The Bad: - The price is so low that most monopolies would go out of business, so the government would have to give them a subsidy. - A price that would be like if it was a perfectly competitive firm
- 28. IV.) Regulated Monopoly Q P D = P MR MC ATC *** More then a monopoly would like to produce and less then society would like to have. Most common way to regulate a monopoly since they still get a normal profit. A price ceiling that it is productively efficient, though not allocatively efficient for society and still allows the monopoly to get at least a normal profit Fair return price P = ATC
- 29. IV.) Monopoly Regulation The Good: - The output is higher and the price is lower then an unregulated monopoly. - The firm would still get a normal profit so a subsidy is usually not needed. 2. Fair return pricing also called Cost of Service regulations
- 30. IV.) Monopoly Regulation The Good: - It is productively efficient, the output is higher and the price is lower then an unregulated monopoly. - The firm would still get a normal profit so a subsidy is usually not needed. The Bad: - It may still be not enough output or low enough prices for society’s desires. Also calculating the price is very difficult and inefficient and prone 倾向于 to rent seeking. 2. Fair return pricing also called Cost of Service regulations
- 31. Monopoly outcomes may seem unfair but alternatives might have untended consequences or make the problem worse IV.) Monopoly Regulation - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy
- 32. Rent Seeking is the act of obtaining special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others. Rent seeking does not always create a monopoly, but it always restricts competition and often creates a monopoly. IV.) Monopoly and Competition By doing something, you promote more of this behavior in trying to make the new rules in your favor
- 33. IV.) Monopoly Regulation - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy Monopolies usually don’t produce enough of what society wants, mostly because it is not profitable for them. One market oriented solution to get the to produce more is to make it more profitable for them. This basically means that the government gives them money to produce more.
- 34. Examples are: water company, power company, many public goods. IV.) Monopoly Regulation Some goods and services are considered natural monopolies and are the best way to provide people what they desire. In the case of the electric company, it is most desirable to produce as much as possible (allocative efficiency) and not necessarily worry about profit, even though they still must cover their costs. 1. Lump Sum Subsidies (can be a bad idea) 2. Subsidies per Unit (usually a better idea) To get the monopoly to produce more (and not price discriminate) the government will have to pay the monopoly to do so. Two ways to do so:
- 35. IV.) Monopoly Regulation A one time payment to the monopoly to do with as they wish. This only affects fixed costs AFC ATC 1. Lump Sum Subsidies (can be a bad idea) 2. Subsidies per Unit (usually a better idea)
- 36. Q P D MR MC ATC IV.) Regulated Monopoly One time payment that only effects fixed costs. Lump Sum ATC AFC ATC Before subsidy
- 37. Q P D MR MC ATC The output stays the same, it’s just now that the costs are lower. To produce more what is needed is the shift the marginal cost line to the right. IV.) Regulated Monopoly One time payment that only effects fixed costs. Lump Sum ATC AFC ATC 1 After subsidy
- 38. IV.) Monopoly Regulation A subsidy on each unit produced. This affects variable costs and marginal costs ATC AVC MC 1. Lump Sum Taxes (can be a bad idea) 2. Subsidies per Unit (usually a better idea)
- 39. Q P D MR MC ATC IV.) Regulated Monopoly Before subsidy
- 40. Q P D MR MC ATC IV.) Regulated Monopoly Subsidy on each unit produced Per Unit Subsidy ATC AVC MC ATC1 MC1 Before subsidy
- 41. Q P D MR MC ATC The idea is that the firm is still producing at the profit maximizing point but that the output is now higher, as well as costs being lower for everyone that is not price discriminated against. IV.) Regulated Monopoly Subsidy on each unit produced Per Unit Subsidy ATC AVC MC ATC1 MC1 After subsidy
- 42. Q P D MR MC ATC The idea is that the firm is still producing at the profit maximizing point but that the output is now higher, as well as costs being lower for everyone that is not price discriminated against. IV.) Regulated Monopoly Subsidy on each unit produced Per Unit Subsidy ATC AVC MC ATC1 MC1 After subsidyQ1
- 43. So a little summary… IV.) Monopoly Regulation
- 44. IV.) Monopoly Regulation Price Discrimination - Good for Society as more is produced Capturing Economies of Scale -Economies of scale can lead to natural monopoly. -It is more efficient to regulate natural monopoly than to break it up and make the industry competitive. Strengthening the Incentives to Innovate - Monopoly might be more innovative than competition. -Innovation can create a monopoly. Benefits of a Monopoly
- 45. IV.) Monopoly Regulation Price Discrimination - Bad for consumers and high prices Not efficient from a society’s perspective - Does not produce as much as people want Loses the Incentives to Innovate -Monopoly might not innovate because it doesn’t have to. Downsides of a Monopoly
- 46. Summarizing some of regulations to solve downsides - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation
- 47. Summarizing some of this - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation The Good: The Bad: - prevent unfair price discrimination - Often poorly run, no profit motive, can be very inefficient and end up performing worse.
- 48. Summarizing some of this - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation The Good: The Bad: - prevent unfair price discrimination - Price controls are hard to determine and sometimes hurt monopolies too much.
- 49. Summarizing some of this - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation The Good: The Bad: Sometimes doing nothing is better, that the solutions could be worse Doesn’t solve the problem at hand
- 50. Summarizing some of this - Public Ownership - Price Regulation and Anti- Trust Laws - Do nothing - Give them a Subsidy IV.) Monopoly Regulation The Good: The Bad: Per unit subsidies can increase output in the market Lump sum subsidies might not increase output in the market
- 51. That’s all for now Thanks