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journal article
Natural Monopoly and Its RegulationStanford Law Review
Vol. 21, No. 3 (Feb., 1969)
, pp. 548-643 (96 pages)
Published By: Stanford Law Review
//doi.org/10.2307/1227624
//www.jstor.org/stable/1227624
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Journal Information
Founded in 1948, the Stanford Law Review is a general-interest academic legal journal. Each year the Law Review publishes one volume, which appears in six separate issues between November and May. Each issue contains material written by student members of the Law Review, other Stanford law students, and outside contributors, such as law professors, judges, and practicing lawyers. Approximately 2,600 libraries, attorneys, judges, law firms, government agencies, and others subscribe to the Law Review. The Law Review also hosts lectures and an annual live symposium at Stanford Law School.
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The Stanford Law Review is operated entirely by Stanford Law School students and is fully independent of faculty and administration review or supervision. The principal missions of the Law Review are to contribute to legal scholarship by addressing important legal and social issues, and to educate and foster intellectual discourse at Stanford Law School. In addition to producing a publication, the Law Review also hosts lectures and an annual live symposium.
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The pure monopolist produces a product for which there are no close substitutes.
The weaker the barriers to entry into an industry, the more competition there will be in the industry, other things equal.
In pure monopoly, there are strong barriers to entry.
A monopolist may create an entry barrier by price cutting or substantially increasing the advertising of its product.
The monopolist can increase the sales of its product if it charges a lower price.
As a monopolist increases its output, it finds that its total revenue at first decreases, and that after some output level is reached, its total revenue begins to increase.
A purely competitive firm is a price taker but a monopolist is a price maker.
A monopolist will avoid setting a price in the inelastic segment of the demand curve and prefer to set the price in the elastic segment.
The monopolist determines the profit-maximizing output by producing that output at which marginal cost and marginal revenue are equal and sets the product price equal to marginal cost and marginal revenue at that output.
The supply curve for a monopolist is the up-sloping portion of the marginal cost curve that lies above the average variable cost.
A monopolist will charge the highest price it can get.
A monopolist seeks maximum total profits, not maximum unit profits.
Pure monopoly guarantees economic profits.
Resources are misallocated by monopoly because price is not equal to marginal cost.
One of the economic effects of monopoly is the transfer of income from consumers to the owners of the monopoly.
When there are substantial economies of scale in the production of a product, the monopolist may charge a price that is lower than the price that would prevail if the product were produced by a purely competitive industry.
The purely competitive firm is more likely to be affected by X-inefficiency than a monopolist.
Rent-seeking expenditures that monopolists make to obtain or maintain monopoly privilege have no effect on the firm's costs.
The general view of economists is that a pure monopoly is efficient because it has strong incentives to be technologically progressive.
One general policy option for a monopoly that creates substantial economic inefficiency and is long lasting is to directly regulate its prices and operation.
Price discrimination occurs when a given product is sold at more than one price and these price differences are not justified by cost differences.
A discriminating monopolist who can segment its market based on elasticity of demand will charge a higher price to the customers with a less elastic demand and a lower price to customers with a more elastic demand.
The regulated utility is likely to make an economic profit when price is set to achieve the most efficient allocation of resources (P = MC).
A fair-return price for a regulated utility would have price set to equal average total cost.
The dilemma of monopoly regulation is that the production by a monopolist of an output that causes no misallocation of resources may force the monopolist to suffer an economic loss.