MGT 621 – Microeconomics


5. Market Power


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          Lecture Notes (Overheads Used In Class)

·       Lecture 5 – Slides



Reading (Preparation)

·       Pindyck/Rubinfeld, Chs. 10—11.



Questions (Preparation)

·       Provide examples for a monopoly. Provide examples for a monopsony.

·       What is market power? How can one quantify it?

·       How does the demand for product A change if the price of product B goes up, if the products are (i) substitutes, (ii) complements?

·       Could the price for a product ever decrease as price goes up?

·       Indicate the elastic portion of a linear demand curve.

·       Why can a monopoly be “good” for society? [Hint: Think a little bit outside the box.]

·       In a two-type screening problem, when can it be optimal for a firm to “shut down” one type, i.e., to only sell to one of the two consumer types? Which of the two types would the firm want to sell to, in such a situation?


Background Reading (for future reference only)

·       Notes on Screening

·       Weber, T.A. (2011) Optimal Control with Applications in Economics, MIT Press, Cambridge, MA, Ch. 4.