Economia de Mercado Monopoly

8/17/2019 Economia de Mercado Monopoly

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Monopoly/Market Power

Economía de Mercado

Profesor Ricardo Pasquini


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Review of

Monopoly

Theory


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Market Power

Sustainability

• This cannot be a long run equilibrium

• There must

be

barriers

to

entry:

– Governements Regulations

–

Structural barriers:

economies

of

scale

that

lead

to

natural monopoly

– Strategic Behavior. Entry Deterrence: act

strategically to

signal

entrants

that

their

postentry

profits will be negative.


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Government Regulation

• Exclusive rights to produce to the incumbent.

• Monopoly franchises

are

seen

in

teleccomunications, public utilities like gas, sewer, water, etc

• Reasons why Government grant exclusive franchise:

• Natural Monopoly

• Share a source of revenue / or redistribute the

rents• Intellectual property rights


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Government Regulation

• http://chequeado.com/el‐explicador/como‐

funciona‐el

‐negocio

‐del

‐ juego

‐en

‐la

‐argentina/

• http://www.lanacion.com.ar/1895352‐

desconectan‐

182‐

maquinas‐

tragamonedas‐

en‐

los‐casinos‐de‐cristobal‐lopez

• http://www.lanacion.com.ar/1895423‐

aprueban‐un

‐nuevo

‐reglamento

‐para

‐los

‐

operadores‐virtuales‐de‐telefonia‐movil


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Structural barriers

• Economies of Scale. The entrant requires a

significant Market

share

in

order

to

be

competitive

•

Sunk

expenditures

to

the

entrant.

If

they

anticipate that sunk costs will not be recovered


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A Dominant Firm with Competitive

Fringe Model

• Monopolies are hard to find in real life. Much

more common

are

“near

monopolies”.

Firms

that

have market share close to 100%, and a bunch of

firms competing for the remaining market

• Why can

this

happen?

• The dominant firm is more efficient than its rivals

and as a result enjoys a significant cost advantage.

• The dominant firm has a superior product.


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Fringe Model

• The elasticity of market demand.

• The elasticity of supply of the fringe.

• Market shares


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Fringe Model


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Durable Goods

Monopoly

• A durable consumer good is a good which

provides a stream

of

sustained

consumption

services: it can be used more than once.

• Land, Films, music, diamonds,.. But also useful

to think of why there are incentive to create

non‐durable goods.

• Think of

an

extreme

example

of

a good

that

lasts forever. Assume supply is fixed


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Durable

Goods

Monopoly


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Durable Goods Monopoly‐ Two period

decision


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Durable Goods

Monopoly

• The monopolist has incentives to lower the

prive over time.

• What about if consumers act strategically?

–

Those who value the good close to

P1,

have anincentive to wait!

– Consumers have a discount factor.. How many of

them will buy today will depend on the relativeimpatience.


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• Consumers at, and close to, the margin have an

incentive to

wait

and

not

pay

the

high

price

today, but the expected lower price tomorrow. If they do this, however, the demand curve will shift inwards in the first period, forcing the monopolist to charge lower prices in the first period!!

• The ability of consumers to arbitrage across periods

restricts

the

ability

of

the

monopolist

to

engage in intertemporal price discrimination.

Durable Goods

Monopoly


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• What will happen if the consumers are

extremely patient?

Or if price adjustments are expected very frequently?

• Consumers thus expect a low price “fast” and

they can

wait

without

incurring

much

cost.

• This makes the demand curve perfectly elastic (horizontal) at P = Pc, eliminating the market

power of

the

monopolist

and

transforming

it

into a price taker!!!

Durable Goods

–Extreme

Case


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• The monopolist has incentives to make his

most effort in communicating consumers that

the Price of the good will not fall.

• Strategies ocurring in the real world:

• Leasing:

• Prior to 1953, the United Shoe Machinery

Corporation–with a market

share

of

between

75% and 85%—had a lease‐only policy.

Durable Goods

–Implications


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• The monopolist has incentives to make his

most effort in communicating consumers that

the Price of the good will not fall.

• Strategies ocurring in the real world:

• Leasing:

• Prior to 1953, the United Shoe Machinery

Corporation–with a market

share

of

between

75% and 85%—had a lease‐only policy.

Durable Goods

–Implications


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• Prior to 1956 IBM had a similar policy for its

mainframe computers.

• Prior to 1975 Xerox also followed a lease‐only

policy for its photocopiers.

Durable Goods

–Implications


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Leasing como instrumento financiero

en Argentina

• En Argentina actualmente existe una ley de

leasing.

• A diferencia del leasing directo de las compañías

monopólicas que vimos, en Argentina el contrato

funciona entre

tres

partes:

i)

el

vendedor

del

bien

durable, ii) un banco que compra y financia a un

usuario, y iii) un usuario que paga un derecho de

uso al

banco.

Además

el

usuario

tiene

una

opción

de compra.


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en Argentina

• El contrato busca dar una posibilidad de

financiar a usuarios

que

no

tienen

capital

el

capital suficiente.

• La teoría nos dice que el banco, al ser el que

compra, podría tener incentivos a esperar…

pero el vendedor no podrá evitar perder

poder

algo

de

poder

monopólico.


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en Argentina

• ¿Qué productos se adquiere mediante este sistema? La demanda se divide en:

•

Equipos

de transporte,

logística

y

automotores

(58%)• Equipamiento industrial (14%)• Maquinaria de construcción y agrícola (17%)• Equipos de tecnología y telecomunicaciones (6%)• Otros usos (5%).

• El sector industrial es el principal tomador de esta línea crediticia,

acaparando el 41% del

volumen

de

mercado.

• Luego le siguen el sector agrícola (37%), el de servicios (15%) y construcción (7%), según datos de la Asociación de Leasing de Argentina.

"Los camiones y vehículos pesados son lo más demandados (35%). Le

sigue tecnología

industrial

(25%),

maquinaria

agrícola

y para

la

construcción", afirma Seva.

• Datos de la Asociación argentina de Leasing.


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• With the videocassette recorder revolution–

one in

(almost)

every

home—Disney

had

a

remarkable opportunity to release its classic

animated films, such as Snow White, Bambi, ..

on videocassette.

• But Disney faced the classic conundrum posed

by

the

Coase Conjecture:

How

to

get

consumers to buy today at high prices?

Durable Goods

–Implications


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Disney

• Disney’s strategy was to make the videos

available for

a limited

time

period

and

accompany the release with an advertising campaign in which Disney claimed that the

video would

only

be

available

for

a limited

time period and then never again.

• In its print advertisements they claimed that

“Disney will

stop

selling

Bambi

March

31,

1997.”


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Disney

• This prompted a senior Disney executive to

remark: “Disappearing

Classics

media

campaigns have proven very successful,

boosting sales of limited‐time available

classics in

excess

of

400

percent”


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• The Coase Conjecture states that as the

discount factor

of

consumers

goes

to

1—or

equivalently the time period between price

changes goes to 0—consumers can force the

monopolist to

produce

and

sell

the

competitive amount immediately.

Pacman Economics


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• The Coase Conjecture states that as the discount

factor of

consumers

goes

to

1—or

equivalently

the time period between price changes goes to 0—consumers can force the monopolist to produce and sell the competitive amount immediately.

• The expectations of consumers and the monopolist’s inability to commit not to lower

prices eliminate

the

monopoly

supplier’s

market

power.

Pacman Economics


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• The Coase Conjecture states that as the discount factor of consumers goes to 1—or equivalently the time period between price changes goes to 0—consumers can force the monopolist to produce and sell the competitive amount immediately.

• The expectations

of

consumers

and

the

monopolist’s

inability to commit not to lower prices eliminate the monopoly supplier’s market power.

•

An

alternative

hypothesis

is

that

in

the

limit

as

the

discount factor goes to one the market power of themonopolist becomes perfect!!

Pacman Economics


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Pacman Economics

• Suppose now that the willingness to pay, or

reservation price,

of

the

high

type

(vh)

is

30

and

the reservation price of the low type (vl ) is 10.

• Strategy:

• The monopolist

sets

her

price

at

period

t

equal to

the highest reservation price of any consumer

that has not purchased prior to t .

• Consumers elect to buy as soon as the price is

less than or equal to their reservation prices.


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Pacman Economics

• In the world of Coase, the demand curve is

such that

the

distribution

of

willingness

to

pay

is continuous. In this example there are only

two, there is a gap between reservation

prices.

Documents

Economia de Mercado Monopoly