Costs and Benefits of Monopoly

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video

Concept description

Alex Tabarrok (reference below, video on right) examines the principal costs and benefits of monopoly.

Costs of monopoly provision

The cost of a monopoly is the loss in Static Efficiency. Relative to a competitive market, a monopoly produces a Deadweight Loss, the value of the trades not taken. As seen below, the loss in consumer surplus is greater than the increase in producer surplus.

MonopolyDeadweightLoss

Benefits of patents

But a system, such as patent protection, that provides monopoly rights might contribute to Dynamic Efficiency by increasing the incentives for research and development.

IncentivesRandDPolicy tradeoff and potential solutions

Tabarrok examines potential solutions to the tradeoff between static efficiency and dynamic efficiency associated with patent provision: patent buyouts and prizes.

PatentBuyoutsPrizesMonopoly

Practice questions

At http://www.mruniversity.com/node/267427, accessed 7 May 2016.

  1. A patent is a government-created monopoly.

Atlas topic, subject, and course

Monopoly and Price Discrimination (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, The Costs and Benefits of Monopoly (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/costs-benefits-monopoly-pharmaceutical-companies, accessed 8 May 2016.

Page created by: Ian Clark, last modified 8 May 2016.

Image: Alex Tabarrok, minute 0.14 of The Costs and Benefits of Monopoly (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/costs-benefits-monopoly-pharmaceutical-companies, accessed 8 May 2016.