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Home Price and Output Determination Under Monopoly Assessment of Discriminating Monopoly or Price Discriminating

 

Assessment of Discriminating Monopoly or Price Discrimination: 

 

Price discrimination is said to occur when a monopolist charges more than one price for an identical product and these price differences are not justified by cost differences. Is this price discrimination, unchecked monopoly power, collusion, price fixing is beneficial for a society or harmful to a economy is debatable. The main points which go in favor or against of discriminating monopoly are discussed in brief as under:             

 

Case for Discriminating Monopoly:

                   

(1) Need for strong companies to face global competition: The industries which require a great deal of capital need protection and support of the government to face global competition. If these companies are made larger and given more monopolistic power, they will be able to avail of the economies of scale and face competition in the global market

 

(2) Research and development: Schumpeter is of the view that it is only the monopolists or the oligopolists that can provide large sums of money for carrying out expensive research and development programmes. So the support for discriminating monopoly.

 

(3) Capital flow: It is also argued that investors are always looking for profitable ventures and mobilize huge sums of money to enter unto the industry which is most profitable. The businesses which have monopoly earn more profit and so attract large capital.

 

(4) Redistribution of income: The case for monopoly is pleaded on the ground also that it brings a redistribution of income. The monopolist earning huge profits give bonuses, higher reward to the workers. The wealth thus gets redistributed from the rich to the poor.

 

Case Against Discriminating Monopoly:

 

(1) Dumping: A monopolist often tries to dump its surplus output on foreign markets, at below cost price. When a dumping company succeeds in driving out competitors, it then raises the price of its product. So the price discrimination that lessens competition is considered harmful and illegal.

 

(2) Allocative inefficiency: it is a fact that a monopolist produces goods at a price greater than marginal cost. It represents a misallocation of resources.

 

Conclusion:

                                       

The government plays two basic roles which are contradictory, (i) it promotes competition and (ii) it restricts competition by regulating and protecting certain industries. The government protects the natural monopolies by taking complete control over them. Sometimes they are operated through public private ownership. The most popular trend, of the 1980's is the transfer of government business to the private sector. The basic logic behind privatization of business is that incentive to be efficient is greater when one's own money is at risk. Those who oppose privatization argue that monopoly must be regulated as it is in the public interest.

 

Relevant Articles:

 

What is Monopoly
Conditions/Base of Monopoly Power
Monopolist's Demand Curve
Short Run Equilibrium Price and Output Under Monopoly
Long Run Equilibrium Under Monopoly
Comparison Between Monopoly and Competitive Equilibrium or Perfect Competition
Misconceptions Concerning Monopoly Pricing
Monopoly Regulations
Monopoly Price Discrimination
Price and Output Determination Under Discrimination Monopoly
Assessment of Discriminating Monopoly or Price Discrimination
Dumping
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money
 

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