Monopoly Mechanics
The market structure characterized by a single seller, a unique product, and no close substitutes.
What is a monopoly?
A market structure dominated by a small number of large, powerful firms that sell similar products.
What is an oligopoly?
Selling the same good to different consumers at different prices based on their willingness to pay.
What is price discrimination?
An illegal agreement among oligopoly firms to fix prices, rig bids, or restrict output to drive up profits.
What is collusion (or a cartel)?
A monopoly that emerges because a single firm can produce goods at a lower cost than multiple smaller firms could.
What is a natural monopoly?
The characteristic of an oligopoly where one firm's choices impact its competitors.
What is mutual interdependence?
Laws designed to prevent monopolies and protect competitive markets.
What are antitrust laws?
The framework used to analyze interactions between interdependent players who must consider their rivals' choices.
What is game theory?
The hurdles, such as high startup costs or patents, that protect a monopoly from new competitors.
What are barriers to entry?
The simplest form of an oligopoly.
What is a duopoly?
A government-imposed limit on the price a monopoly can charge, often set where P = MC or ATC.
What is price ceiling (or price regulation)?
A situation in game theory where both players choose their optimal strategy given the strategy chosen by the other.
What is a Nash Equilibrium?
The loss of economic efficiency that happens when a monopoly restricts output to raise prices.
What is deadweight loss?
A model explaining why oligopoly prices remain stable, predicting that rivals will match price cuts but ignore price increases.
What is a curved demand curve?
A price point where a monopoly earns zero economic profit because the P equals ATC.
What is fair-return pricing?
A scenario showing why two firms might fail to cooperate, even when cooperation is in their best collective interest.
What is the Prisoner's Dilemma?
A firm's ability to raise the market price of a good or service above marginal cost without losing all its customers.
What is market power (or monopoly power)?
A metric calculated by adding the market shares of the top four.
What is the Four-Firm concentration ratio?
The price and quantity where a monopoly achieves allocative efficiency because the price charged to consumers equals the MC of production.
What is socially optimal pricing, or (P = MC)?
A strategy that yields the highest payoff for a firm, regardless of its competitor's strategy.
What is a dominant strategy?