chapter  13
18 Pages

Monopoly

ByBonnie Nguyen, Andrew Wait

A market with one seller is a monopoly, and that seller is a monopolist. This chapter examines how the market power of a monopolist allows it to charge higher prices in order to increase its profits, and considers the welfare implications of this market power. It analyses how the monopolist might use price discrimination to further increase its profits. The chapter looks at the regulation of a natural monopoly, where it is less costly for the whole market to be serviced by one firm, rather than two or more. Monopolies have the following characteristics: one seller and many buyers; price maker; and barriers to entry. The chapter also examines the behaviour of a monopolist who charges the same price to all of its consumers. Price discrimination allows a monopolist to increase its profit further relative to when it charges the same price to all consumers.