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

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 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