Antitrust

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Chapter 13

• Antitrust Regulation

12/14/2014
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What is a Monopoly?

• A market structure consisting of one firm
  producing a good that has no close substitutes
  and firm entry is impossible

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What should aMonopoly charge to maximize profit?
Price determined at output level where

• MR MC

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Monopolists Profit
Price
m
a
PM
Deadweight Loss under Monopoly
n
PC
MCATC
b
MR
D
QC
0
QM
Quantity
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Divergent views regarding how to deal with
Monopolies?

• 1. Regulate
• 2. Nationalize
• 3. Leave alone

• 4. Concentrate
• 5. Split up

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What is Regulation?

• Although ownership of the regulated firm remains
  in private hands, pricing and production
  decisions are monitored by government

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What is a fair market price to impose on a
Monopoly?

• The price that will enable it to make a Normal
  Profit

Where does a Monopoly make a Normal Profit?
P ATC
8
MC
ATC
P1
AVC
P3
P2
D
Q1
Q2
Q3
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Can less than a Normal Profit be mandated?
Yes!
But only if the monopoly is subsidized
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The City Bus Company
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Profit Maximization
P

ATC
MC
Price
ATC
2
Profit
D
1
MR
Q
60,000
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