Regulating Monopoly

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Regulating Monopoly

This lecture focuses on monopoly regulations and what that can mean for the monopoly and the consumer

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University of Oklahoma
Econ 1123 - Princ. of Econ-Micro

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ECON 1123 1st Edition Lecture 19 Outline From Previous Lecture (Lecture 18) I. Monopoly Inefficiency II. Monopoly Characteristics Revisited Outline Lecture 19 I. Price Discrimination II. Regulating the Natural Monopolist III. How do you tell monopoly power? Lecture 19 Notes I. Price Discrimination Price Discrimination- charging different customers different prices for the same product Three types of price discrimination: 1. First degree (perfect) price discrimination- charging each customer the maximum priced each is willing to pay. They will do this until the demand meets the ATC schedule because if they do that past that point on the demand schedule they will incur loss. 2. Second degree Price discrimination- Charging different customers based on the quantities purchased. This is called “tiered pricing” 3. Third degree price discrimination- charging different groups of customers different prices. (example: airlines will charge business people more than vacationers because business people have more inelastic demand that says that they really need to be somewhere. II. Regulating the Natural Monopolist Natural monopoly = large economies of scale (declining ATC) mean the efficient scale of operations is roughly equal to market demand (electrical company, water company) Marginal Cost pricing rule- Regulations force the natural monopoly (public utility) to charge a price that equals marginal cost Average Cost Pricing- Regulators require the natural monopoly to charge a price = to average total costs At Price of average total costs the utility earns normal accounting profits These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.

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