Monopoly

This chapter analyzes monopoly, the simplest form of imperfect competition where a single firm dominates a market with no close substitutes. It begins by exploring how monopolists set prices and quantities to maximize profits, in contrast with perfectly competitive markets. The chapter then examines price discrimination, distinguishing between first-, second-, and third-degree forms. These strategies show how monopolists capture consumer surplus and increase revenues, though often at the cost of equity and welfare. The welfare implications of monopoly are studied, emphasizing deadweight loss and efficiency reduction. Regulation of monopoly is also discussed, including government interventions to control prices and output or to encourage competition. A special section addresses the behavior of a dominant firm with a competitive fringe, highlighting how leaders influence prices and market outcomes. The chapter concludes with a synthesis of the main ideas and guiding questions for application. Students gain an understanding of both the theoretical underpinnings of monopoly power and its real-world regulatory implications.