# Firms with Market Power ## Market Structures - Structure types - Monopoly, only one seller, unique products - Oligopoly, several sellers, some what differentiated products - Monopolistic competition, many sellers, somewhat differentiated products - Source of the pricing power = barrier of entry - Controls the resources - Technological barrier - Patterns - Product differentiation -> Ad - Style - Location - Quality - In the long-run, companies will lose most of their barriers, except in the case of _Natural Monopoly_. - Large percentage of _fixed cost_ - When they are broken up, they tend to merge again ## Output for Firms with Market Power - Still constrained by the downward sloping demand curve. - When a firm has market power, the price will increase and the output will decrease - Price effect = reduction of revenue due to reduction of price. - Airplane ticket price from Champaign to Chicago is twice as much as that to NYC! - Markup = price marked - the actual cost ## Price Strategies - ==Price Discrimination== = same product, different price - Some pricing power - Prevent reselling - Separating consumers - Perfect Price Discrimination - Financial Aid, financial information is required in this case - By negotiating with buyers one by one - Imperfect Price Discrimination - Happy hours - Cinema discount - Coupons - Airline - Other strategies to capture consumers' willingness to pay - Bundling - Two-Part Tariff ## The Social Cost of Market Power - Some trades will not occur in monopoly (market failure) - When price discrimination is introduced, more products can be supplied