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12
PRICE AND OUTPUT
DETERMINATION:
Monopoly and Dominant Firms
….
While a competitive firm is a price
taker, a monopoly firm is a price
maker.
A firm is considered a monopoly if . .
 it is the sole seller of its product.
 its product does not have close substitutes.
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WHY MONOPOLIES ARISE
The fundamental cause of monopoly
is barriers to entry.
WHY MONOPOLIES ARISE
Barriers to entry have three sources:
 Ownership of a key resource.
 The government gives a single firm the
exclusive right to produce some good.
 Costs of production make a single producer
more efficient than a large number of
producers.
Competition: Perfect and
Otherwise
Monopoly
 One seller, and seller controls price
Monopoly Resources
Although exclusive ownership of a
key resource is a potential source of
monopoly, in practice monopolies
rarely arise for this reason.
Government-Created
Monopolies
Governments may restrict entry by
giving a single firm the exclusive
right to sell a particular good in
certain markets.
Government-Created
Monopolies
Patent and copyright laws are two
important examples of how
government creates a monopoly to
serve the public interest.
Natural Monopolies
An industry is a natural monopoly
when a single firm can supply a good
or service to an entire market at a
smaller cost than could two or more
firms.
Natural Monopolies
A natural monopoly arises when
there are economies of scale over
the relevant range of output.
Figure 1: Economies of Scale as a
Cause of Monopoly
Cost
Average
total
cost
0
Quantity of Output
Copyright © 2004 South-Western
HOW MONOPOLIES MAKE PRODUCTION
AND PRICING DECISIONS
Monopoly versus Competition
 Monopoly
•
•
•
•
Is the sole producer
Faces a downward-sloping demand curve
Is a price maker
Reduces price to increase sales
 Competitive Firm
•
•
•
•
Is one of many producers
Faces a horizontal demand curve
Is a price taker
Sells as much or as little at same price
Figure 2 Demand Curves for
Competitive and Monopoly Firms
(a) A Competitive Firm’s Demand Curve
Price
(b) A Monopolist’s Demand Curve
Price
Demand
Demand
0
Quantity of Output
0
Quantity of Output
Copyright © 2004 South-Western
A Monopoly’s Revenue
Total Revenue
P  Q = TR
Average Revenue
TR/Q = AR = P
Marginal Revenue
DTR/DQ = MR
Table 1 A Monopoly’s Total,
Average, and Marginal Revenue
Copyright©2004 South-Western
A Monopoly’s Revenue
A Monopoly’s Marginal Revenue
 A monopolist’s marginal revenue is always
less than the price of its good.
• The demand curve is downward sloping.
• When a monopoly drops the price to sell one
more unit, the revenue received from previously
sold units also decreases.
A Monopoly’s Revenue
A Monopoly’s Marginal Revenue
 When a monopoly increases the amount it
sells, it has two effects on total revenue
(P  Q).
• The output effect—more output is sold, so Q is
higher.
• The price effect—price falls, so P is lower.
Figure 3 Demand and MarginalRevenue Curves for a Monopoly
Price
$11
10
9
8
7
6
5
4
3
2
1
0
–1
–2
–3
–4
Demand
(average
revenue)
Marginal
revenue
1
2
3
4
5
6
7
8
Quantity of Water
Copyright © 2004 South-Western
Profit Maximization
A monopoly maximizes profit by
producing the quantity at which
marginal revenue equals marginal
cost.
It then uses the demand curve to find
the price that will induce consumers
to buy that quantity.
Figure 4 Profit Maximization for a
Monopoly
Costs and
Revenue
2. . . . and then the demand
curve shows the price
consistent with this quantity.
B
Monopoly
price
1. The intersection of the
marginal-revenue curve
and the marginal-cost
curve determines the
profit-maximizing
quantity . . .
Average total cost
A
Demand
Marginal
cost
Marginal revenue
0
Q
QMAX
Q
Quantity
Copyright © 2004 South-Western
Profit Maximization
Comparing Monopoly and Competition
 For a competitive firm, price equals marginal
cost.
P = MR = MC
 For a monopoly firm, price exceeds marginal
cost.
P > MR = MC
A Monopoly’s Profit
Profit equals total revenue minus
total costs.
 Profit = TR - TC
 Profit = (TR/Q - TC/Q)  Q
 Profit = (P - ATC)  Q
Figure 5 The Monopolist’s Profit
Costs and
Revenue
Marginal cost
Monopoly E
price
B
Monopoly
profit
Average
total D
cost
Average total cost
C
Demand
Marginal revenue
0
QMAX
Quantity
Copyright © 2004 South-Western
A Monopolist’s Profit
The monopolist will receive
economic profits as long as price is
greater than average total cost.
Figure 6 The Market for Drugs
Costs and
Revenue
Price
during
patent life
Price after
patent
expires
Marginal
cost
Marginal
revenue
0
Monopoly
quantity
Competitive
quantity
Demand
Quantity
Copyright © 2004 South-Western
THE WELFARE COST OF
MONOPOLY
In contrast to a competitive firm, the
monopoly charges a price above the
marginal cost (P ↑)
From the standpoint of consumers,
this high price makes monopoly
undesirable.
However, from the standpoint of the
owners of the firm, the high price
makes monopoly very desirable.
Figure 7 The Efficient Level of Output
Price
Marginal cost
Value
to
buyers
Cost
to
monopolist
Value
to
buyers
Cost
to
monopolist
Demand
(value to buyers)
Quantity
0
Value to buyers
is greater than
cost to seller.
Value to buyers
is less than
cost to seller.
Efficient
quantity
Copyright © 2004 South-Western
The Deadweight Loss
Because a monopoly sets its price
above marginal cost, it places a
wedge between the consumer’s
willingness to pay and the producer’s
cost.
 This wedge causes the quantity sold to fall
short of the social optimum.
Figure 8 The Inefficiency of Monopoly
Price
Deadweight
loss
Marginal cost
Monopoly
price
Marginal
revenue
0
Monopoly Efficient
quantity quantity
Demand
Quantity
Copyright © 2004 South-Western
The Deadweight Loss
The Inefficiency of Monopoly
 The monopolist produces less than the
socially efficient quantity of output.
The Deadweight Loss
The deadweight loss caused by a
monopoly is similar to the
deadweight loss caused by a tax.
The difference between the two
cases is that the government gets
the revenue from a tax, whereas a
private firm gets the monopoly
profit.
PUBLIC POLICY TOWARD
MONOPOLIES
Government responds to the problem
of monopoly in one of four ways.
 Making monopolized industries more
competitive.
 Regulating the behavior of monopolies.
 Turning some private monopolies into public
enterprises.
 Doing nothing at all.
Increasing Competition
with Antitrust Laws
Antitrust laws are a collection of
statutes aimed at curbing monopoly
power.
Antitrust laws give government
various ways to promote competition.
 They allow government to prevent mergers.
 They allow government to break up
companies.
 They prevent companies from performing
activities that make markets less competitive.
Regulation
Government may regulate the prices
that the monopoly charges.
 The allocation of resources will be efficient if
price is set to equal marginal cost.
Figure 9 Marginal-Cost Pricing for
a Natural Monopoly
Price
Average total
cost
Regulated
price
Loss
Average total cost
Marginal cost
Demand
0
Quantity
Copyright © 2004 South-Western
Regulation
In practice, regulators will allow
monopolists to keep some of the
benefits from lower costs in the
form of higher profit, a practice that
requires some departure from
marginal-cost pricing.
Public Ownership
Rather than regulating a natural
monopoly that is run by a private
firm, the government can run the
monopoly itself (e.g. in the United
States, the government runs the
Postal Service).
PRICE DISCRIMINATION
Price discrimination is the business
practice of selling the same good at
different prices to different
customers, even though the costs for
producing for the two customers are
the same.
PRICE DISCRIMINATION
Price discrimination is not possible
when a good is sold in a competitive
market since there are many firms
all selling at the market price. In
order to price discriminate, the firm
must have some market power.
Perfect Price Discrimination
 Perfect price discrimination refers to the
situation when the monopolist knows
exactly the willingness to pay of each
customer and can charge each customer a
different price.
PRICE DISCRIMINATION
Two important effects of price
discrimination:
 It can increase the monopolist’s profits.
 It can reduce deadweight loss.
Figure 10 Welfare with and without
Price Discrimination
(a) Monopolist with Single Price
Price
Consumer
surplus
Deadweight
loss
Monopoly
price
Profit
Marginal cost
Marginal
revenue
0
Quantity sold
Demand
Quantity
Copyright © 2004 South-Western
Figure 10 Welfare with and
without Price Discrimination
(b) Monopolist with Perfect Price Discrimination
Price
Profit
Marginal cost
Demand
0
Quantity sold
Quantity
Copyright © 2004 South-Western
PRICE DISCRIMINATION
Examples of Price Discrimination
 Movie tickets
 Airline prices
 Discount coupons
 Financial aid
 Quantity discounts
Sebuah fakta…
Perusahaan multi nasional yang berbasis di 15
negara maju meningkat dari 7.000 pada tahun
1968 menjadi 27.000 perusahaan pada tahun
1993
Menurut Heertz:
Modal kekayaan dari suatu perusahaan multinasinal
terkemuka di dunia seperti Toyota, General Motor (GM),
atau Ford sekarang ini sama seperti PDB dari banyak
NSB.
Tiga ratus perusahaan
multinasional menguasai 25%
aset dunia
Mengapa ada peningkatan Kemiskinan.?
800 juta orang penduduk dunia menderita
kekurangan gizi dan 2,4 milyar orang hidup
dibawah garis kemiskinan
Mengapa Keberadaan multinasional begitu
kuat….?
Perusahaan-perusahaan multinasional
menguasai kekayaan yang begitu besar (40%
dari GDP dunia dan 70% perdagangan) dan
memaksakan kepentingannya kepada dunia
Diperkirakan hingga tahun 1997 ada 45.000
perusahaan induk yang memiliki 280.000
cabang, yang menciptakan penjualan di atas
7,0 trilyun dolar AS. Nilai saham mereka
diperkirakan 3,2 Trilyun dolar AS;
Increasing Competition
with Antitrust Laws
Two Important Antitrust Laws
 Sherman Antitrust Act (1890)
• Reduced the market power of the large and
powerful “trusts” of that time period.
 Clayton Act (1914)
• Strengthened the government’s powers and
authorized private lawsuits.
Undang-Undang Antitrust di
Amerika
Sherman Antitrust Act (26 Stat 209, 1890)
Semua kontrak, penggabungan dalam bentuk trust
atau dalam bentuk lain seperti itu atau
persekongkolan dalam pembatasan perdagangan
antara beberapa negara bagia atau dengan
negara-negara lain, dengan ini dinyatakan tidak
sah menurut hukum…
Semua orang yang akan memonopoli atau
mencoba untukmemonopoli, atau bergabung atau
bersekongkol dengan orang atau orang atau orang
lain untuk memonopoli sebagian dari perdagangan
atara beberapa negara, atau dengan negeranegara lain, akan dianggap berbuat kejahatan
besar.
….
Clayton Antitrust Act (38 Stat 730, 1914)
Bahwa stiap orang yang terlibat dalam
perdagangan akan dianggap melawan hukum,
selama perdagangan yang dimaksud, langsung
atau tidak langsung melakukan diskriminasi harga
diantara para pembeli yang berbeda yang membeli
komoditi dari standar dan mutu yang serupa…
Bahwa setiap orang yang terlibat dalam
perdagangan akan dianggap melawan hukum,
selama perdagangan yang dimaksud,
menyewakan atau mengadakan penjualan atau
kontrak…dengan syarat, persetujuan, atau
pengertian bahwa si penyewa atau si pembeli
karenanya tidak akan menggunakan atau
memebeli….komoditi dari seorang pesaing…
….
Federal Trade Commission Act
(37 Stat 717, 1914)
Cara persaingan yang tidak jujur….tindakantindakan atau praktek-praktek yang curang atau
yang bersifat menipu dalam atau yang
mempengaruhi perdagangan, dengan ini
dinyatakan melawan hukum.
Dengan ini komisi diberi wewenang dan
diarahkan untuk mencegah…menggunakan
cara-cara yang tidak jujur….atau tindakantindakan atau praktek-praktek yang bersifat
menipu dalam perdagangan.
Alternative Means of
Deterrence
Empat Bentuk Hukuman
(Undang-Undang Federal)
1
Pembayaran denda untuk
pemerintah
2
Pembayaran kerugian sebesar tiga kali
lipat pada pihak-pihak yang dirugikan
3
Hukuman penjara
4
Perintah pembubaran kerjasama
Beberapa faktor yang menyebabkan
kita menolak untuk bekerja sama:
Secara empiris, ketika dipersidangan para
pihak-pihak yang dirugikan sebagian besar
melakukan perdamaian dengan cara
melakukan kerjasama bisnis dengan pihak
tergugat.
Pembubaran kerjasama akan berdampak
besar terhadap perekonomian secara
makro, misalnya terhadap harga saham, dan
pengangguran dsb..
Komisi Pengawas
Persaingan Usaha (KPPU)
…saat mulai diperlakukannya UU No. 5 tahun 1999
tentang Larangan Praktek Monopoli dan Persaingan
Tidak Sehat
…kemudian dibentuk KPPU (Komisi Pengawas
Persaingan Usaha)
Tercatat hingga saat ini KPPU telah memutuskan
dua kasus, yaitu kasus “Tender Kolusif Caltex”
dan “Jaringan Minimarket Indomaret”. Sedangkan
kasus-kasus lain, baru pada tahap monitoring dan
atau penyidikan awal.
Pengawas Persaingan Usaha
Dalam Pandangan Islam
…Islam mengatur persaingan usaha tepatnya pada
masa pemerintahan Islam di Semenanjung Arabia
pada masa Khalifah Umar bin Khattab
Dasar Hukum :
…hasil dari usaha manusia tidak boleh ditimbun,
tanpa dimanfaatkan untuk kepentinga sesama
manusia (QS: 9:34)
…segala sesuatu tidak boleh dilakukan dengan cara
yang bathil atau curang antara lain dengan penipuan
(QS: 6: 152)
….melanggar janji atau sumpah (QS: 16: 94)
…melakukan perbuatan-perbuatan lain yang
bertujuan mengambil hak orang lain tanpa izin, di
luar pengetahuan dan kemampuan yang berhak
(QS: 5: 38)
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