as economics unit 1 market failure: monopoly. aim: to understand the barriers to entry in a...
TRANSCRIPT
![Page 1: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/1.jpg)
AS Economic
s Unit 1
MARKET FAILURE: MONOPOLY
![Page 2: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/2.jpg)
Aim:To understand the barriers to entry in a
monopolistic market.
Objectives:All: Define a pure monopolyAll: Explain how pure monopolistic firms
can restrict output and price fix.Most: Analyse the barriers to entry in a
monopolistic market.Some: Evaluate the case of a monopoly.
AIMS AND OBJECTIVES
![Page 3: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/3.jpg)
In pairs decide on a definition of a Monopoly market.
To help you think about the objective of playing the board game monopoly.
2 mins
STARTER
![Page 4: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/4.jpg)
A single firm produces the whole of the output of a market.
Faces no competition from other firms as there are no other firms in the market.
100% market share
PURE MONOPOLY DEFINITION
![Page 5: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/5.jpg)
PURE MONOPOLISTIC MARKET
Price
Quantity
Q1
P1
D
P2
Q2
• Competitive market.
• Monopolistic firm enters the market.
• In a pure monopolistic market the firm can restrict output (Q1-Q2).
• Market equilibrium was (Q1-P1)
• Therefore it can charge a higher price for it’s products to make higher profits.
![Page 6: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/6.jpg)
A market which is dominated by one firm.
The firm owns more than 25% of market share.
NON-PURE MONOPOLY DEFINITION
25%
Y
X
![Page 7: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/7.jpg)
An effective monopoly must be able to exclude rival firms from the market through barriers to entry (things which stop other firms entering a market)
A monopoly is strongest when it produces an essential good for which there is no substitutes or when demand is inelastic. .E.g. One firm producing bread/milk. (Unrealistic)
MONOPOLY
![Page 8: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/8.jpg)
Factors which prevent firms from entering a market.
In a monopoly barriers which exist are based on economies of scale.
BARRIERS TO ENTRY
![Page 9: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/9.jpg)
L A M
I N B
R
BARRIERS TO ENTRY
A MONOPOLISTIC MARKET
![Page 10: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/10.jpg)
L: LIMIT AND PREDATORY PRICING
The large monopolistic firms have the lowest
costs in an industry.
Economies of scale.
Firm lowers it’s prices to a level where other
firms cannot compete.
Driving them out of the industry.
BACK
![Page 11: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/11.jpg)
A: ADVERTISING
Large firms can spread the costs of
advertising, as they produce thousands of
units.
New entrants to the market have to match
that level of advertising expenditure but they
cannot.
BACK
![Page 12: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/12.jpg)
M: MULTIPLICITY OF BRANDS
Large monopolistic firms can sell a large
number of different products and brands.
Targets multiple areas of the market.
Therefore attracts more customers.
Tesco stocks 20 varieties of apple!BACK
![Page 13: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/13.jpg)
I: INTEGRATION (COMBINING TWO FIRMS)
As monopolistic firms get larger they can
integrate, with larger firms and smaller ones.
This enables them to use predatory pricing
more effectively.
Economies of scale
get larger.
BACK
![Page 14: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/14.jpg)
N: NON PRICE COMPETITION
Strategies to persuade customers to buy goods,
without lowering prices.
Tesco Clubcard
8 million users, most popular loyalty card in UK.
The greater the benefits for the customer, the
more years that customer will remain loyal.BACK
![Page 15: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/15.jpg)
B: BRANDING
Brands have unique
characteristics. Built
over many years.
Created through
advertising.
Making demand more
inelastic.
BACK
![Page 16: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/16.jpg)
R: RESEARCH AND DEVELOPMENT
Increasing expenditure on R&D
Firms can produce products which give them the edge over their competitors.
Charge a higher price than their competitors.
BACK
![Page 17: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/17.jpg)
Write down on your post it note the seven barriers to entry to monopolistic
firms.
MINI PLENARY
![Page 18: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/18.jpg)
http://www.bbc.co.uk/news/world-europe-13320358
What barriers to entry do you feel the new French taxi drivers facing? (2 Marks)
Draw the diagram to show what has been occurring in the French taxi industry prior to this firm entering the market. (4 marks)
What may be the eff ects of a new firm entering this industry? (6 Marks)
PLENARY: MONOPOLY OF FRENCH TAXI DRIVERS
![Page 19: AS Economics Unit 1 MARKET FAILURE: MONOPOLY. Aim: To understand the barriers to entry in a monopolistic market. Objectives: All: Define a pure monopoly](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d8d5503460f94a75d88/html5/thumbnails/19.jpg)
Occurs because compared to the competitive market, output falls and the price rises, leading to under consumption of the good the monopoly produces.
MONOPOLY AND MARKET FAILURE