Sources of Monopoly Power

Monopoly power

It refers to the ability of a seller to control price by varying quantity.

In general, the smaller is the elasticity of the demand faced by the firm, the greater is the monopoly power.


Sources of monopoly power

The ability of a monopolist to control price comes mainly from the following:

      Closed market

The market is closed such that the potential competitors are blocked to compete with the existing sellers.  The sellers in such a market is a closed-market monopolist.


      Information-transaction costs / Non-standardized products

If the quality of the products from different sellers are not uniform (or if the buyers hold such a belief because of information-transaction costs), a seller may then charge a higher price without losing all customers.  Sellers in this market are called open-market monopolists. 







<1> Introduction
<2> Sources of monopoly power
<3> Uniform pricing & monopoly rent
<4> Price discrimination
>First Degree
>Third Degree
> Conditions for price discrimination
<5> On efficiency











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