Download The theory of monopoly originated with Antoine Augustin Cournot

Essenziale di economia
Stanley L. Brue, Campbell R. McConnell, Sean M. Flynn
Copyright © 2010 – The McGraw-Hill Companies srl
9.2 Monopoly
The theory of monopoly originated with Antoine Augustin Cournot (1801‐1877). A French mathematician, Cournot published writings on philosophy and mathematics, as well as economics. He was a predecessor to what economists call the marginalist school of economics, meaning he emphasized marginal analysis in decision‐making. As part of his marginal analysis, Cournot was the first economist to apply mathematics to economic theory. In addition to this work on the monopoly model, Cournot developed the first theory of duopoly (a two‐firm industry). In developing his theory of monopoly, Cournot was also the first to articulate the familiar MR=MC rule for profit‐maximizing firms. To illustrate his theory, Cournot used the example of a mineral spring, from which the owner can sell the water. Because the water flows naturally from the earth, Cournot assumed that marginal costs were zero. From there Cournot explained: Suppose that a man finds himself proprietor of a mineral spring which has just been found to possess salutary properties possessed by no other. He could doubtless fix the price of a liter of water at 100 francs; but he would soon see by the scant demand [quantity demanded], that this is not the way to make the most of his property. He will therefore successively reduce the price of the liter to the point which will have him the greatest possible profit, i.e. if F(p) denotes the law of demand [quantity demanded], he will end, after various trials, by adopting the value of p [price] which renders the product pF(p) [total revenue] a maximum. In short, the seller will charge some price above its marginal cost to maximize profit. Modern monopoly theory incorporates increasing marginal costs in the standard model, but Cournot's mathematical specifications of demand and marginal revenue are precisely those reflected in the textbook's model. Photograph courtesy of: (c)Nance Trueworthy