November 26th, 2013 / ESG MS

What do they have in common?

�1

Text

Company information | tagline | copyright © !2

monopoly

Economics for Managers" 2013-2014 M. RAYNA

and its available solutions

November 26th, 2013 / ESG MS

monopoly

YOUR "LOGO"HERE

Aymane ACHITE"Lola MAINARDIS"Woojin KIM

Unbroken

Content

November 26th, 2013 / ESG MS !4

I. ‘’UNBROKEN’’ MONOPOLY? "

1. Definition of Monopoly

2. Definition of Natural Monopoly 1) Definition

2) Economic Condition : Economies of Scale

3. Cases of Natural Monopoly

Content

November 26th, 2013 / ESG MS !5

II. WHY CANNOT THIS MONOPOLY BE BROKEN?

"1. Understanding of Natural Monopoly

1) Theoretical Definition

2) Natural Monopolies in Reality

2. Disadvantage

3. Advantage

Content

November 26th, 2013 / ESG MS !6

III. HOW TO SOLVE IT? "

1. Acceptable Natural Monopolies

2. Natural Monopolies

with Need for Regulation

3. Can Natural Monopoly be broken?

4. Things to think about :

the Case of Microsoft’s Windows

Essential to understand ‘Unbroken Monopoly’

November 26th, 2013 / ESG MS

Definition of Monopoly

!7

Monopolistic Competition

Perfect"Competition

4 Categories of Competition

Oligopoly

Monopoly

Competitors

When there is only one firm in the industry

November 26th, 2013 / ESG MS

Examples of Monopoly - (1)

November 26th, 2013 / ESG MS

Examples of Monopoly - (2)

November 26th, 2013 / ESG MS

November 26th, 2013 / ESG MS

Examples of Monopoly - (3)

�11

MONOPOLY = BAD?

November 26th, 2013 / ESG MS

November 26th, 2013 / ESG MS

Disadvantage of Monopoly

�13

Pm ="Price under monopoly"Pc ="Price under perfect competition

Provided the current formal definition.

First coined the term ‘Natural Monopoly’.

November 26th, 2013 / ESG MS

Richard Allen Posner(1939-)

Willam Baumol!(1922-)

History of!Natural Monopoly

Defintion of Natural Monopoly

‘‘A situation where long-run average costs would be lower if an industry were under

monopoly than it were shared between two or more competitors.’’

The situation when the cost advantage arises with increased output of a product.

DefinitionEconomies of!Scale

November 26th, 2013 / ESG MS

Company information | tagline | copyright © �16

Cases of Natural

Monopoly

November 26th, 2013 / ESG MS

Theoretical Definition!of Natural Monopoly

�17

D ="Market demand curve"LRAC ="Long-run average cost curve

Under Monopoly!5 cents / 4 million kilowatt-hour"with one firm""Under Perfect Competition!10 cents / 4 million kilowatt-hour"with two firms

How can it be generated?Natural Monopoly!in Reality

�18November 26th, 2013 / ESG MS

November 26th, 2013 / ESG MS

Disadvantage of Monopoly

�19

Pm ="Price under monopoly"Pc ="Price under perfect competition

Barriers to entry

Under monopoly

Lower output in higher

Unequal distribution of

Higher cost curves

Less competition

Less incentive

Disadvantage of Natural Monopoly

High risk of Bureaucracy

Consumers have no choice

November 26th, 2013 / ESG MS

ADVANTAGE - 1. ECONOMIES OF SCALE

LARGER PLANT

CENTRALISED ADMINISTRAION

AVOIDANCE OF UNNECESSARY DUPLICATION

Economies of

Scale

Larger plants

Centralised Ad.

No duplication

November 26th, 2013 / ESG MS

ADVANTAGE - 1. ECONOMIES OF SCALE

November 26th, 2013 / ESG MS

Advantage of!Natural Monopoly

�23

12

3

1. Economies of Scale

2. Possibility of lower cost curves due to more R&D and investment

3. Competition for corporate control4. Innovation and new products

4

November 26th, 2013 / ESG MS

IT BRINGS MORE

Acceptable Monopolies

ADVANTAGES THANDISADVANTAGES…

AS LONG AS

!24November 26th, 2013 / ESG MS

caption

!25

NATURAL MONOPOLIES!WITH NEED FOR REGULATIONLimit pricing

November 26th, 2013 / ESG MS

"

"

Can Natural Monopoly be broken?

YOUR.COMPANY.INFORM OR TAG LINE HERE

MICROSOFT IS A NATURAL MONOPOLY?

THINGS TO THINK ABOUT

YOUR LOGO HERE

Is the framework of natural monopoly

still effective in digital economics?

Thank you.‘In 21st century,

=

Q&AYou can download our report and presentation on our Class Facebook Group