MGMT 4A Lecture Notes - Lecture 6: Monopolistic Competition, Price Gouging, Dynamic Efficiency
Document Summary
Exerts considerable control over what market price will be, also controls quantity. Independent firms organize to restrict output and raise prices. Sherman act: which unfairly tends to destroy competition itself. Monopoly: are no close substitutes; not a price taker but a price maker. P=ac regulates price in natural monopoly industries; zero economic profits, less price gouging, smaller deadweight loss, cost-plus pricing, guaranteed recovery of costs. Increase in x-efficiency from cost-plus pricing> increase in allocative efficiency by regulating monopolist. Measures rate of technological change and innovation in an industry; faster this rate, the better the industry will perform. Monopolies would lead to higher rates of dynamic efficiency bc monopolists are likely to earn a much higher level of economic profit than competitive industries, leads to more research and development and faster diffusion of technology. Defining characteristics of monopolistic competition: numerous sellers, easy entry/exit (competition) Nonprice competition: accessibility, service and condition of scale, physical characteristics and product quality, advertising, packaging, branding, trademarks.
