[Economics for Managers] Natural Monopoly

1. November 26th, 2013 / ESG MS
What do they
have in common?
1

2. Text
Company information | tagline | copyright © !2
monopoly

3. Economics for Managers"
2013-2014 M. RAYNA
and its available solutions
November 26th, 2013 / ESG MS
monopoly
YOUR "
LOGO"
HERE
Aymane ACHITE"
Lola MAINARDIS"
Woojin KIM
Unbroken

4. Content
November 26th, 2013 / ESG MS !4
I. ‘’UNBROKEN’’ MONOPOLY?
"
1. Definition of Monopoly
2. Definition of Natural Monopoly
1) Definition
2) Economic Condition : Economies of Scale
3. Cases of Natural Monopoly

5. Content
November 26th, 2013 / ESG MS !5
II. WHY CANNOT
THIS MONOPOLY BE BROKEN?
"
1. Understanding of Natural Monopoly
1) Theoretical Definition
2) Natural Monopolies in Reality
2. Disadvantage
3. Advantage

6. Content
November 26th, 2013 / ESG MS !6
III. HOW TO SOLVE IT?
"
1. Acceptable Natural Monopolies
2. Natural Monopolies
with Need for Regulation
3. Can Natural Monopoly be broken?
4. Things to think about :
the Case of Microsoft’s Windows

7. Essential to understand ‘Unbroken Monopoly’
November 26th, 2013 / ESG MS
Definition of Monopoly
!7

8. Monopolistic
Competition
Perfect"
Competition
4 Categories of Competition
Oligopoly
Monopoly
Competitors
When there is only one firm in the industry
November 26th, 2013 / ESG MS

9. Examples of Monopoly - (1)
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10. Examples of Monopoly - (2)
November 26th, 2013 / ESG MS

11. November 26th, 2013 / ESG MS
Examples of
Monopoly - (3)
11

12. MONOPOLY =
BAD?
November 26th, 2013 / ESG MS

13. November 26th, 2013 / ESG MS
Disadvantage of
Monopoly
13
Pm ="
Price under monopoly"
Pc ="
Price under perfect competition

14. Provided the current
formal definition.
First coined the term
‘Natural Monopoly’.
November 26th, 2013 / ESG MS
Richard Allen
Posner(1939-)
Willam Baumol!
(1922-)
History of!
Natural Monopoly
Defintion
of Natural
Monopoly
‘‘A situation where long-run average
costs would be lower if an industry were under
monopoly than it were shared between two or more
competitors.’’

15. The situation when the cost advantage
arises with increased output of a product.
DefinitionEconomies of!
Scale
November 26th, 2013 / ESG MS

16. Company information | tagline | copyright © 16
Cases of
Natural
Monopoly

17. November 26th, 2013 / ESG MS
Theoretical Definition!
of Natural Monopoly
17
D ="
Market demand curve"
LRAC ="
Long-run average cost curve
Under Monopoly!
5 cents / 4 million kilowatt-hour"
with one firm"
"
Under Perfect Competition!
10 cents / 4 million kilowatt-hour"
with two firms

18. How can it be generated?Natural Monopoly!
in Reality
18November 26th, 2013 / ESG MS

19. November 26th, 2013 / ESG MS
Disadvantage of
Monopoly
19
Pm ="
Price under monopoly"
Pc ="
Price under perfect competition

20. Barriers
to entry
Under monopoly
Lower output in higher
Unequal distribution of
Higher cost curves
Less
competition
Less
incentive
Disadvantage of Natural Monopoly
High risk of
Bureaucracy
Consumers
have no
choice
November 26th, 2013 / ESG MS

21. ADVANTAGE - 1. ECONOMIES OF SCALE
LARGER PLANT
CENTRALISED ADMINISTRAION
AVOIDANCE OF UNNECESSARY
DUPLICATION
Economies
of
Scale
Larger
plants
Centrali
sed Ad.
No
duplication
November 26th, 2013 / ESG MS

22. ADVANTAGE - 1. ECONOMIES OF SCALE
November 26th, 2013 / ESG MS

23. Advantage of!
Natural Monopoly
23
1
2
3
1. Economies of Scale
2. Possibility of lower cost curves due to more R&D and investment
3. Competition for corporate control
4. Innovation and new products
4
November 26th, 2013 / ESG MS

24. IT BRINGS MORE
Acceptable Monopolies
ADVANTAGES THAN
DISADVANTAGES…
AS LONG AS
!24November 26th, 2013 / ESG MS

25. caption
!25
NATURAL MONOPOLIES!
WITH NEED FOR
REGULATION
Limit pricing
November 26th, 2013 / ESG MS

26. "
"
Can Natural Monopoly be broken?

27. YOUR.COMPANY.INFORM OR TAG LINE HERE
MICROSOFT IS A NATURAL MONOPOLY?
THINGS TO THINK ABOUT
YOUR
LOGO
HERE
Is the framework
of natural monopoly
still effective in
digital economics?

28. Thank you.‘
In 21st century,
=

29. Q&A
You can download our report and presentation on our Class Facebook Group