by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Restrictive Practices under Antitrust Law? Antitrust law includes rules against restrictive practices – practices that do not involve outright agreements to raise price or to reduce the quantity produced, but that might have the effect of reducing...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Some Other Approaches to Measuring Monopoly Power in an Industry? Both the four-firm concentration ratio and the Herfindahl-Hirschman index share some weaknesses. First, they begin from the assumption that the “market” under discussion is well-defined, and...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Cooperation Affect the Kinked Demand Curve? Because oligopolists cannot sign a legally enforceable contract to act like a monopoly, the firms may instead keep close tabs on what other firms are producing and charging. Alternatively, oligopolists may choose to...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How to Force Cooperation in a Prisoner’s Dilemma? The way out of a prisoner’s dilemma is to find a way to penalize those who do not cooperate. Perhaps the easiest approach for colluding oligopolists, as you might imagine, would be to sign a contract with each other...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Oligopolists face a Prisoner’s Dilemma? The members of an oligopoly can face a prisoner’s dilemma, also. If each of the oligopolists cooperates in holding down output, then high monopoly profits are possible. Each oligopolist, however, must worry that...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Monopolistic Competition Affect Efficiency? The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the average cost curve. This outcome is why perfect...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Monopolistic Competitors Affect Market Entry? If one monopolistic competitor earns positive economic profits, other firms will be tempted to enter the market. The entry of other firms into the same general market shifts the demand curve that a monopolistically...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Monopolistic Competitors Choose Price and Quantity? The monopolistically competitive firm decides on its profit-maximizing quantity and price in much the same way as a monopolist. A monopolistic competitor, like a monopolist, faces a downward-sloping demand...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Perceived Demand for a Monopolistic Competitor? A monopolistically competitive firm perceives a demand for its goods that is an intermediate case between monopoly and competition. The demand curve that a perfectly competitive firm faces is perfectly elastic or...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Why is a Monopoly Inefficient? Most people criticize monopolies because they charge too high a price, but what economists object to is that monopolies do not supply enough output to be allocatively efficient. To understand why a monopoly is inefficient, it is useful...
