Econ 201 1st Edition Lecture 37Outline of Last Lecture 1.MonopolyOutline of Current Lecture 1.Barriers to Entry that Preserve Monopoly Status2.Market Structure and Its MeasuresCurrent LectureBarriers to Entry that Preserve Monopoly Status• Exclusive ownership of a critical input.– Example: The only water well in an arid environment.• Protection by government: Entry is forbidden by law.– Patents, copyrights, British East India Company• Significant economies of scale.– New entrants are viable only if they start out very large.– Natural Monopoly: Economies of scale across the range of Demand.Market Structure and Its Measures• Market structure refers to the degree of concentration.• Monopoly is fully concentrated. – 100% share of market served by one firm. • Perfect competition is the other extreme.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.– Each firm serves only a small fraction of the market.• Concentration measured in different ways:– 4 Firm Concentration Ratio: share of market served by largest 4– 6 Firm Concentration Ratio: share of market served by largest 6– Herfindahl Index: Sum of squares of each firm’s share.– HI = Σn(Si)2 where Si = market share of firm i, n = no. of firms• HI ~ Monopoly: HIM = 1002 = 10,000• HI ~ Ten equal firms: HI10 = 10 × 102 = 1000• HI ~ One hundred equal firms: HI100 = 100 × 12 =
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