Abstract
This chapter explores monopoly models, where a single firm operates in an industry. We first study the output decisions of this type of firm in a simplified setting with linear demand and constant marginal costs. Exercise 1.2 then extends our analysis to a context where the monopolist faces a convex cost function (i.e., increasing marginal costs) which may occur when, intuitively, producing further units becomes increasingly expensive. Exercises 1.3 also examine more general environments where the firm faces a generic inverse demand function and a generic cost function, while Exercise 1.4 focuses on settings where the monopolist faces a convex, concave, or linear demand.
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Notes
- 1.
Generally, an innovation is defined as non-drastic if, in the case that only one firm innovates, its monopoly price after the innovation, p(c ′) , lies above its rival’s marginal cost before the innovation, c. If this holds, the innovator sets a price slightly below the marginal cost of the non-innovating firm, p = c − ε where ε → 0, driving it out of the market.
References
Tirole, J. (1988). The theory of industrial organization. Cambridge: The MIT Press.
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Choi, PS., Dunaway, E., Munoz-Garcia, F. (2021). Monopoly. In: Industrial Organization. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-57284-6_1
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DOI: https://doi.org/10.1007/978-3-030-57284-6_1
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