Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (7028)	8/13/2001 9:36:51 AM
From: PMG	Read Replies (3) \| Respond to of 74559

According to industrial economic theory there is one and only one economic condition where a monopoly adds more to welfare (w), defined as "producers' rent"(pr) + "consumers rent'"(cr). (I hope the English terms are correctly chosen or understandable). Ok, the economically optimal goal is: w=pr+cr -> max Another premise is that any company will try top maximize its profits. To maxmize profits, a monopolist will have to set a reduced output and a higher price at any given function of demand. If you sum up pr+cr of the monopoly solution and compare that to a solution where there are two or more competitors, you will some to a result where the solution with competitors has a higher w, a higher cr and lower cr. This is why normally competition is preferred as welfare is maximized. The case mentioned in the beginning is called "natural monopoly". You have a natural monopoly when economies of scale are so extreme that the one monopolist has got an absolut cost advantage. In global markets this is almost never the case though as quantities have become so large compared to the capacity of a single production facility that even a monopolist would have more of the same facility and thus no pricipal advantage that could be related just to EoS. Standardisation is NOT an argument because you don't need a monopoly to do that. GSM is a good example. It's standardized, you have competition and indeed very low prices. I also think that the price of Microsoft Software is much higher than it could be. The excess profits might have been wasted in stupid ventures such as msn. But now, THIS is of course no longer proovable...