Other Sales Strategies:
a) Two-part Tariff Pricing:
The consumer pays a fixed (access) fee for service, plus a variable charge per unit purchased. Ex) utilities (electricity and gas), amusement parks and theme parks, sports clubs (racquet courts, aerobic classes, golf clubs etc).
b) Tying and Bundling:
• Tying: a seller’s conditioning the buy of one product on the purchase of another.
Technological ties: specific plug-in interface may be hard to copy or actually protected from copying by IPR. Example- ink-jet printers
Contractual ties: consumer is bound by contract to consume both products from the same Source. Example Harley-Davidson Motorcycles.Welfare Issues in Monopoly:
The major concern is that monopoly misallocates resources by producing the “wrong” amount of a good, where price does not equal marginal cost.
Suppose we are given the demand function as P(Q) = A − bQ , and the cost is fixed at c. With this information we are necessary to solve the following questions:
Determinants of DWL:
DWL = 1/2dP. dQ = 1/2dP. dQ.( dP/dP).(P/P).(Q/Q).(P/P)
If we assume constant costs, so that dP = Pm − c , then upon gathering terms, this is equivalent to
DWL =1/2⋅εD .Pm ⋅Qm ⋅L2 where L is Lerner Index.
This suggests that the inefficiency associated with monopoly pricing is greater, the larger the Lerner index, the larger the elasticity of demand, and the larger the industry (as measured by the firm’s revenues). Nevertheless such an interpretation would be incorrect since L depends on the elasticity of demand. As ε rises a profit-maximizing monopolist responds by decreasing L.
Starting with Harberger (1954), estimates of the economy-wide loss from the exercise or market power have been calculated based on the above equation. Harberger estimated that the DWL in the manufacturing sector in U.S. was approximately 0.1% of GDP. The relatively small estimates are due to low observed values of L and his assumption that the elasticity of demand was one. Little values of L are consistent with profit maximizing if demand is relatively elastic not unity.
Cowling and Mueller (1978) observe that if a firm is a monopolist and profit maximizes, then εD = 1 L and the equation will be DWL = πm/2. Their estimates based on this equation suggest that DWL could be on the order of 4% of GNP. However, the use of this assumes that all firms are monopolists, and this is clearly as unsatisfactory as assuming that L is independent of the elasticity of demand.
X-inefficiency:
A monopoly may spend “too much” on advertising, product differentiation, or investment in excess production capacity. Tullock (1967) and Posner (1975) argue that the welfare costs of monopoly include expenditures on lobbying and campaign contributions intended to obtain tariff protection, patent protection, and other preferential government treatment. In the extreme, a firm would be willing to spend an amount up to the potential monopoly profits to become a monopolist. Such rent-seeking activities would enhance the welfare costs of monopoly.
Cowling as well as Mueller considered this issue carefully. They used advertising expenditures to approximate the costs of monopolization to society. Adding these costs to their estimate of DWL, they estimated that the welfare cost of monopolization may be as high as 13 percent of GDP.
In less competitive markets there is a smaller amount of pressure on firms to use inputs efficiently. Inefficient monopolists may not be driven out of the market even in the long run. We consider this effect on costs, called X-inefficiency (by Leibenstein, 1966). If monopolization raises costs, the DWL is larger. Additionally the costs of producing the monopoly output level are higher. The important welfare point is that if increasing competition in monopolized markets would lead to reduced costs, then estimates of welfare loss based on DWL triangles such as Harberger’s will be far too low. While the controversy over the welfare cost of market power has not been resolved, it is possible to step back and make three observations. First, even a relatively small percent of GNP represents a considerable amount of resources. Second, any strategic behavior on the part of firms intended to obtain or protect their monopoly positions raises the costs of monopolization substantially. Third, in some industries, the potential gains to society from decreasing monopoly power are large.
Latest technology based Microeconomics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Microeconomics help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Microeconomics, project ideas and tutorials. We provide email based Microeconomics help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Microeconomics Homework help and assignment help services. They use their experience, as they have solved thousands of the Microeconomics assignments, which may help you to solve your complex issues of Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
Are you feeling tensed? Hire best Commercial Law Assignment Help to get quality work at affordable prices and to score A++!
Each decision making includes the future and business decision making is no exception. Though the only single thing specific about the future is that we cannot be ensure what will take place.
Programming languages currently plays a vital role in all types of problem solving. They are come out under dissimilar levels identical to the computers.
tutorsglobe.com mineral nutrition assignment help-homework help by online plant physiology tutors
Theory and lecture notes of Linear Algebra in MATLAB all along with the key concepts of linear algebra, linear systems, LU decomposition, QR method. Tutorsglobe offers homework help, assignment help and tutor’s assistance on linear algebra.
tutorsglobe.com subject matter of public finance assignment help-homework help by online fiscal policy tutors
www.tutorsglobe.com offers answering questions to terms and balance of trade, economics assignment help - homework help and online tutoring by online trade economics tutor's help.
tutorsglobe.com lionel robbins definition assignment help-homework help by online nature and scope of economics tutors
reversible and irreversible reactions tutorial all along with the key concepts of the carnot cycle, efficiency of a carnot engine, isothermal expansion at high temperature, adiabatic expansion, isothermal compression at low temperature and adiabatic compression
Theory and lecture notes of Prisoners Dilemma all along with the key concepts of prisoners dilemma, Cheating on the Cartel, dominant strategy. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Prisoners Dilemma.
Theory and lecture notes of MATLAB function and its DATA types all along with the key concepts of functions and data, MABLAB function, MATLAB DATA types. Tutorsglobe offers homework help, assignment help and tutor’s assistance on MATLAB function and its DATA types.
boost your grades and future with reliable wellness and lifestyle analysis assignment help. we deliver a++ solutions within deadline!
bogged down with tough academic task? avail oscillation and waves assignment help and score well at competitive prices!
Behavioral ecology of African mammals tutorial all along with the key concepts of Proximate causation, Optimization theory, Differential reproductive success and Evolutionarily stable strategies
Two broad approaches to equity maintenance have raced for acceptance - Maintaining the owners’ investment, Maintaining business operations
1933562
Questions Asked
3689
Tutors
1456657
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!