is monopoly bad?

[ReasonAndLiberty]

I'm not sure you're completely correct. Why would a monopoly have incentive to innovate? As you said, they have "guaranteed" customers (supposedly). Hence, they could afford to not innovate in the simplistic model.

You also neglect to mention that monopolies are formed almost exclusively when the government gets involved. There are very few cases of free market monopoly.

[pajholden]

@ReasonAndLiberty To your first point - they have an incentive of even greater supernormal profit if their innovation allows them greater market share in a new market. If they fail to innovate the market they currently dominate will be overtaken by the innovation of others who cannot compete currently. It is Schumpeter's theory. Your second point: Microsoft? Government competition policy aims to restrict formation of harmful monopolies through M & A policy, but it still happens

[ReasonAndLiberty]

@pajholden First of all, patent monopolies are government-created

Secondly, Microsoft is an example of ridiculous government policy. Microsoft hardly had a stranglehold on the market and we've seen that the market has easily taken it down with Firefox and recently Chrome (in the field of internet browsing). There was no natural resource that was monopolized and there were essentially no barriers to entry for a company with a great product.

Antitrust policy has stifled innovation and competition

[rodrigodet]

I am sorry maybe you alredy made a video on this but how are monopolies created?

[ReasonAndLiberty]

@rodrigodet This is a very important question. The truth is that most monopolies are created *by the government*. The free market typically doesn't tend to monopolies.

[SimmaBola]

Why couldn't you have written the textbook you make things so easy to understand!

[flightsnhike226]

14 people thought this was about the board game

[GenryHale]

Really nice explanation. I tried a similar video in a more visual way. Watch it if you want. Thumbs up.

[HARSHASUDARSHANA]

Great

[TheIslandGIL]

Hi Phil i really lyk your video, pls how can we reduce the production cost in the short run and the long run?

[Shahnamh]

beautifully explained!!!!

[mba2ceo]

Now I know why Greece is the way it is.

[siddharthbhatia11]

thanx mate very helpful

[tmaloneh]

what is an example of a firm that is a monopoly however charges low prices to deter others from entering the market?

[AlphaDog147]

in my time of need pajholden is there to explain what’s going..............

again, all your videos have been very beneficial

[diaverde09]

so it's all circumstantial than? right on. 

[awsdfefry]

@diaverde09 if you look at the movie lerenzo's oil you can see that monopolies are totaly evil. to try and explain this to ignorant people is that capatalists want to own everything, and when they do own everything its communist russia, athialism.

[Guaporense1]

This model is already obsolete.

[168tiffany]

you are the best lecture!!!!!!!!!!!!

[cobracarg]

there is more monopoly under a government then in a free market society... people just look at monopolies at one definition as a single producer...a monopoly comes to existents when there is a barrier of entry into a specific market... that is the worst case of monopoly, and in the US, they monopolistic companies that do this are also sponsored by the government (ie utility business )

[Nanowarex]

So this has nothing to do with the game?

[GelandnaleG]

1:48am Thursday (CDT) - Time n ME

[prdjr73]

very good breakdown! Thanks for posting

[charlieboi2]

I think also a major factor in the benfits of monopoly would also be the fact that abnormal profits can and often are ploughed into research and development to maintain market position by maintaining barriers to entry. Microsoft, a near monopoly would never be producing the products it does today with using profits to develop products. Profits are therefore not neccessarily bad.

[jilow]

Couldn't they profit maximize then lower when the new comers enters the market? That would have the same effect.

As for as R&D is concerned, they may have some R&D to lower production cost, but there is no real incentive to improve quality, unless they want to keep a quality of a certain height to have some sort of barrier to entry, kind of like your pricing argument of not profit maximizing price.

Eitherway just like with anything competiton will breed ingenuity more than one person wil

[maxgunn555]

wat you on about? monopoly isnt bad. its great! i always win at monopoly.

[reenz1231]

confused with this market i didnt think the diagram was drawn like that?

[reenz1231]

@reenz1231 i know what he has down he has added in price descrimination..

[annienonu]

extremely right

[SpudsGood]

You are a great teacher.  Can you go over empirical demand fuunction?

[bmcfad00]

Let me start by saying that I enjoy your vids. Now then, you might should have waited to draw MR until after you have introduced the perfectly competitive firm (as P=AR=MC). This may cause confusion. Thanks for the great uploads.

[the1trueseed]

thats not the monopoly diagram weve been taught and surely if its perfect competition you cant get a monopoly for a start :S

[Methereals]

only prob is that he didn't take into consideration loss in producer surplus

[bitchslap1994]

im in yr 10 and im confused?

[TheMathsstudent]

@bitchslap1994 you dnt really need to know this until A level economics dude

[RemusRomulas]

great video m8 5/5 helped me a lot for my research paper.

[LogicalEuropean]

A coercive monopoly is not the result of laissez-faire; it can result only from the abrogation of laissez-faire and from the introduction of the opposite principle—the principle of statism.

[Garhunt05]

@LogicalEuropean odd since I could argue that nobody wants laissez-faire since more often than not people within the market lobby the government or simply become the government and end laissez-faire for their benefit. Also since when has man kind practiced laissez-faire in any aspect of life humans like to make things happen and exercise control on the world around them. also in laissez-faire what is stopping business men from associating with one another and becoming a de-facto government?

[LogicalEuropean]

@Garhunt05 Your argument makes no sense. If government plays no role in the economy, then why would companies try and interfere with the market? There should be a separation of State and Market akin to that of the separation of Church and State.

Laissez-faire is in essence a competition by people for power, in the markets power would then be redefined as profits. The more people compete the better, and if a group of people manage to satisfy the consumer then more power to them.

[Garhunt05]

@LogicalEuropean why do companies do it now, for profit. also it is dmn near impossible to have a let do economy since economics applies to just about every aspect of daily living. not to mention that just about every form of transportation now a days is heavily subsidized in nearly every part of the world the market price for transportation is very very high. you know.

Also there is such a thing as too much competition and the manufacturing of wants in order to game the market.

[LogicalEuropean]

@Garhunt05 Profit is the invisible hand. The enforcer that promotes efficiency, and affordability. There is no such thing as "to much competition", the more the better.

The reason transportation fees are high is because of the lack of competition (like you've mentioned before, subsidization). I've said it before. If government interferes with the markets, then corporations will interfere with government (and thats never a good thing).

[Garhunt05]

@LogicalEuropean technically that would make all non profits inefficient wouldn't it but there are hundreds of them and they're functioning quite well. Also yo neglect to mention that historically governments have built roads and that just about every society on the planet recognizes that roads are common property.

One more thing that logic is flawed since more often the market changes then the corporates lobby then the government acts. There is no current example of let do.

[LogicalEuropean]

@Garhunt05 Non-profits would be inefficient if it wasn't from the goodwill of those who offer donations. Non-profits are amazing, they show the good will of those who choose to better the world.

The reason governments are historically "the builder of roads" is because governments have historically existed as tyrannies.

If the government did not have the authority to act, then the corporations would have no reason to lobby the government. You don't see anyone lobbying for an official church.

[Scientisticsoviet]

@LogicalEuropean Not true, if there are large barriers to entry then over time certain "natural" monopolies can come into existence.

[LogicalEuropean]

@Scientisticsoviet Large barriers can only exist with the help of governments. It doesn't matter how much a company grows, if it fails to satisfy the consumer then other companies will emerge to satisfy the consumer. Though if a big company manages to keep the consumer satisfied, then the markets will continue to let it exist.

[Scientisticsoviet]

@LogicalEuropean Nope. Capital intensive industries have large barriers to entry because much initial investment is required in order to be able to compete with them, such that most household and firms don't bother. A good example of this is the mining industry.

[LogicalEuropean]

@Scientisticsoviet Thats true but they can also be challenged another way (through technological advances).

[cloudsinmycoffee24]

what about when the AR and MR curves slope downwards?? the deadweight loss is still there right?

[21mattg21]

Great video, thanks for the help.

[luizinho81]

thank you very much for the explenation on monopolies

[MillionthUsername]

You should do a presentation where you apply the understanding of monopoly to governments and the cartels which they create and sponsor.

You can apply it to gov't itself as well. Many gov'ts eat up about 50% of society's resources, yet they are not regulated by market forces since they operate by coercion.

We cannot tell what the costs ought to be because gov't income is derived from stealing, not voluntary exchange. This theft likely produces more poverty and misery than would normally occur.

[keyinregulus3]

And yet every business in the world tries to create a monopoly, which could be why people think of businesses as bad...

[easyp576]

great video taping, special mention to ben

[titofagbenle]

5*

5*

5*

[GIOGS]

COME AND SAVE THE UK ECONOMY!! you know everything!! sooooo good :D

[beautifulmindnyc]

You are amazing

[Castilliaisme]

Hi Good videos how much are you selling your DVDs for???

[MonkeyMagic089]

I would also like to know why MC is flat. I always thought this wasn't the case in a Monopoly.

[titofagbenle]

No no...that was just showing why it would be a loss to society if there was a monopoly

[frdgordon]

Do a video on the Solow Model

[E3tiger]

Hey can you explain why the AC and MC curves are flat and in the same place here? Does the deadweight loss only occur when they are like that. I always thought that in monopoly the AC and MC are drawn as usual.

[crsdale]

That's what I wanted to ask as well. What does the term 'constant returns to scale' mean?

Thanks for making this video by the way!

[CaesarXXIV]

constant return means constant marginal costs. It means that the cost to make one unit is always the same.

AC and MC are flat and equal if there's no fixed cost. If C(q)=5q then AC=MC.

Deadweight loss will always happen when you have a monopoly. Deadweight loss always happen when you have a monopoly (unless the monopolist is not rational and chooses to produce at P=MC)

[Questfortruth86]

Constant returns to scale means that if you multiply the factors of production by "z", output will correspondingly increase by "z". Increasing returns to scale means that if you multiply the inputs by "z", output will increase by greater than "z". Also dead-weight losses don't only occur in situations where one firm has complete market control; you can have dead-weight losses for oligopolistic competition, and with the introduction of trade barriers.

[xlehnhoff]

This was exactly a question in my final micro exam. I owe you for that one, Phil!

[pajholden]

a big beer please!

[10000maj]

@pajholden thxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx­xxxxxxxxxxxxxxxxxxxxxxx from pk

[bigmangiff]

@pajholden thanks phil, great explanation never stop making these videos, they really help :)

[awsdfefry]

@xlehnhoff if you look at the movie lerenzo's oil you can see that monopolies are totaly evil. to try and explain this to ignorant people, is that capatalists want to own everything, and when they do own everything, its communist russia, athialism. also the diagram shows one monopoly is then less than the next one,, so is less and less, people create something that they need, and people trade for it, if they like it, ohh patented franchized monopoly, stops and destroys creative free spirits.

[jaywon06]

what about incentive for discovery?

research and discovery? if we did not have them we would not have the rate of invention and discovery w/o patents and trademarks?

[pajholden]

of course. There is more dynamic efficiency (best chance for progress over time) under monopoly since they have the best incentive and financial resources to fund research.

[wo0ter]

Thank you for making this video.

[XoXPinkFeverXoX]

HI, your videos are great! Very logical and useful! Could you please explain oligopoly and cartels? Thanks!

[ProprietorOfSelf]

if an industry is monopolized it either means that it has been licensed monopoly priviledge by the state, or it has served the consumer so well that no one else is able to compete. if the monopoly is making abnormal profits, that is a warning signal for aspiring entreprenuers to enter the field. so as long as it is within the context of a free market, monopolies are not necessarily bad.

[XpsychotikX]

you are a godsend..

Thank you so much..

I'm writing my economics A-Level final soon and I'm freaking out..

You've helped me alot..

Thank you once more.. Very much appreciated..

[rumaera]

big thank to u for doing this. and if u can make more about business studies that will be more helpfull to me thanks again.!

[aryaldo]

hi, with regards to the contestable market view (the third arguement for) would this aim of retaining market share fall under alternative theories of the firm?(you should so do a lesson on that!:) And would you say that a monopoly would only implement this "predatory pricing" in the short run as it would surley look to put up some other kind of barrier in the long run in order to gain supernormal profits?

[pajholden]

Yes, aryaldo, i am sure you are right. Predatory pricing is certainly a dangerous strategy for a monopoly given it is illegal. That said, intent has to be proved - not so easy. But yes, a more secure barrier to new entrants must be found. Thanks for your comments - they are the reason I do this!

[Scientisticsoviet]

@pajholden Indeed I am also wondering about the same thing aryaldo mentioned myself. It seems to me should a firm in a say an industry gain a monopoly position, it could sacrifice a large short run super-normal profit in order to deter competitors (possibly through excess capacity maintenance). I also wonder whether this deterrence is easier in capital intensive industries (given it would take a while for a rival firm/individual to gather the sufficient capital to be willing to enter).

[vincentca2004]

yes i love it and its all logic to me. I was very good at maths and sciences but i wish i had taken economics in high school. Its just amazing:). I am finishing off my BA in Business management and then going for my MA in Shipping. I cant wait to come back to Greece...Take care and i will see you soon

[vincentca2004]

who would have thought i would learn economics from one of my high school teachers on the other side of the world.....Keep it up Mr Holden. Vincent (the Italian)

[pajholden]

Vincent! Fantastic to hear from you! At last you are learning something! Seriously, good to hear from you... how is Marco? If your Economics is half as good as your football then you'll be fine...

[pajholden]

Hi gopiravid. I sent a you a long message separately as there isn't room here. Hope it helps.

[gopidravid]

yeh thnx for tht , i sent u a reply i think gopefully u can exaplin some stuff i addressed in tht, thanks alot

[e7eem]

hi ur videos are very helpfull but could you please send me the message that u sent to gopidravid, about integration

thanks,

[johnebii]

you're saying that monopolies are not necessarily always bad b/c of potential new entrants into the market that have not yet entered and will make their decision on whether or not to do so based on the behaviour of the monopolist. I thought the precondition of a monopolist was lack of competition. In other words, you're talking about monopoly not being bad because of potential competition. I thought monopoply was the condition where no threat of competition exists.

[pajholden]

Hello Johnebii. Thanks for your comment. The theory of contestable markets suggests that when we observe a monopoly it is possible that the only reason it remains the dominant supplier is because it sacrifices abnormal profits and keeps its price sufficiently low to deter new entrants who, were the monopoly to profit maximise, would enter and compete. In short, by limit pricing, some monopolies we observe may be placing market share and domination above short term profit.

[johnebii]

yes I understand. I guess the only difference is that when you say monopoly the only requirement seems to be 'dominant supplier'. I had always thought of a monopoly to be defined more like 'single supplier of product/service not subject to competition'.

In other words, the only real monopolies are those set up by gov't. Thanks for these lessons. I really enjoy them and get a different more mathematical view than I have previously been exposed to.

[gopidravid]

hey thnx for the vid m8, do you no much bout integration, like vertical integration, horizontal integration e.t.c, cos i would really appreciate t if u can briefly explain that thanks,

[yacineW12]

Is this an economics lesson??