Competition and price discrimination
Introduced| English | Meaning |
|---|---|
| monopoly/məˈnɒpəli/ | A market structure in which a single seller supplies a good or service with no close substitutes. |
| price discrimination/praɪs dɪˌskrɪmɪˈneɪʃn/ | Charging different buyers different prices for the same product for reasons not explained by corresponding differences in cost. |
| consumer surplus/kənˈsuːmə ˈsɜːpləs/ | The difference between what buyers are willing to pay and what they actually pay, summed across purchases. |
| market power/ˈmɑːkɪt ˈpaʊə/ | The ability of a seller or buyer to influence market prices or trading conditions. |
| allocatively inefficient/ˈæləkətɪvli ɪnɪˈfɪʃənt/ | Describing an allocation where changing output could increase total social benefit net of social cost. |
The power of one seller
- A monopolist doesn't take the price — it sets it, by choosing how much to supply. That power can mean fat profits and higher prices.
- But monopolies can also use a clever trick: charging different customers different prices.
A profit-maximising monopolist sets output where:
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MR = MC gives the profit-maximising quantity; the price comes from demand at that quantity.
The monopolist's choice
- A monopoly 垄断 faces the whole market demand, so to sell more it must lower the price (MR lies below AR).
- It maximises profit where MR = MC, then reads the price up from the demand curve — a higher price and lower output than perfect competition.
The monopolist picks the output where MR = MC, then charges the highest price demand will bear.
Pricing and competition
How a firm prices depends on demand and supply; with market power it can charge above the competitive level.
Price discrimination requires all of these EXCEPT:
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Discrimination means charging different prices; it needs power, separable groups, and no resale.
Match each type of price discrimination to its example.
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Third-degree splits by group; first-degree extracts each buyer's full willingness to pay.
For price discrimination to work, the firm must prevent ______ between the groups.
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Otherwise the cheap group resells to the expensive group, collapsing the scheme.
Price discrimination 价格歧视
- Price discrimination = charging different prices to different buyers for the same good (to capture more consumer surplus 消费者剩余).
- It needs market power 市场势力, the ability to separate groups, and to stop resale between them.
- Third-degree discrimination: by group (student/adult tickets); first-degree: each buyer's maximum.
Monopoly isn't all bad. It can fund R&D and reap economies of scale (lower costs). But it tends to be allocatively inefficient 配置无效率 (P > MC) and can exploit consumers.
A monopoly is allocatively inefficient because it sets a price above marginal cost (P > MC).
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P > MC means the value of the last unit exceeds its cost — too little is produced.
The costs and benefits of monopoly
- Costs: higher prices, lower output, allocative inefficiency (P > MC).
- Benefits: economies of scale (lower costs) and profits that can fund research and innovation.
You've got it
- a monopoly is a price-maker: set output at MR = MC, price off demand (P > MC)
- this gives higher price, lower output, and possible supernormal profit
- price discrimination charges groups different prices — needs power, separable markets, no resale
Write from a price difference of 5
- A firm charges adults 12 and students 7 for the same visit.
- Students cannot resell tickets to adults.
What is the price difference, and what practice is this?
Two prices for the same good, with no resale, is discrimination.
What is this pricing practice?
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12 minus 7 is the gap between the two prices.