Monopolies

• What is market power?

  The ability of businesses to set prices above a level that would exist in a highly competitive market
• What do higher prices in a monopoly indicate?

  Higher prices mean supernormal profits
• What role do barriers to entry play in a monopoly?

  Barriers of entry prevent the profitable entry of new firms
• What percentage of market share do dominant firms typically have?

  More than 40%
• What percentage of searches does Google control?

  87%
• What defines a monopoly?

  A monopoly is where a single firm has control over a market for a particular product or service
• How does a firm in a monopoly behave in terms of pricing?

  The firm acts as a price maker
• What are the policies to control monopoly power?

  • Investigation of monopoly power by the CMA
  • Addressing collusion and predatory pricing
  • Restricting vertical takeovers
  • Implementing windfall taxes
  • Nationalisation of natural monopolies
  • Regulation of service quality
  • The Competition and Mergers Authority's role in mergers
  • Breaking up monopolies to increase competition
• What does the CMA do regarding monopoly power?

  The CMA investigates potentially anti-competitive practices
• What is one practice that the CMA investigates?

  Collusion
• What is predatory pricing?

  Setting prices low to eliminate competition
• Why might the CMA restrict vertical takeovers?

  If it threatens supplies for competitors
• What is a windfall tax?

  A tax imposed on companies that earn enormous profits unexpectedly
• What is the purpose of nationalisation in the context of monopolies?

  To ensure lower prices and quality service
• What does regulation of service quality involve?

  Monitoring health and safety for passengers
• What is the role of the Competition and Mergers Authority?

  To investigate mergers and acquisitions to prevent monopolies
• What action did the CMA take regarding the Sainsbury and Asda merger?

  They stopped the merger in 2019
• What power does the CMA have regarding monopolies?

  The CMA has the power to break up monopolies
• What is price discrimination?

  When a firm charges a different price to different groups of consumers for an identical good or service
• What is an example of price discrimination?

  Student discounts
• In which market structures is price discrimination most common?

  Most common in monopolies and oligopolies
• What are the main aims of price discrimination?

  • Increasing revenue
  • Higher profits
  • Utilizing spare capacity
• What is the first degree of price discrimination?

  Charging each consumer the maximum price they’re willing to pay
• What is the second degree of price discrimination?

  Charging different prices based on the quantity each consumer is willing to buy
• What is the third degree of price discrimination?

  Charging different prices based on the group of consumers