Chapter 10

Price and Output under Pure Monopoly

Avijit Mallik
Assistant Professor
IBA, University of Dhaka
 Monopoly Market Power: Features & Sources
MONOPOLY
◦ 1 firm in market
◦ Firm market share 100%
◦ Unique product
◦ Complete barriers to entry
◦ Significant Market power
◦ Price Setter
◦
No substitutes
Sources of Monopoly power
Natural Resources: ALCOA (bauxite producer), De
Beer (Uncut Diamond producer)
Natural Monopoly from scale of Production: IBM in
80’s
Patent: Xerox (Photocopier) , AstraZeneca,
Moderna (Covid Vaccine) , Polaroid (Camera)
Government Control: WASA, DESCO, BAPEX, TITAS,
Bangladesh Railway
Price Discrimination
First Degree (Entire CS is extracted)
Ex: Automobiles sold by dealer based on personal data
Second Degree (Part of the CS is extracted) companies price based on how
much they can sell.
Ex: Bulk purchase discount on single product, Coupons, Buy two get one
Third Degree (Charging diff price in different markets)
Example: segmentation based on age, income, user. Parks, movie tickets,
airlines, industrial vs domestic electricity user
Profit Maximization (Monopoly and
Monopolistic)
Chapter 11
Other Market Structures: Monopolistic &
Oligopoly
MONOPOLISTIC COMPETITION

◦ Many firms
◦ Firm size small
◦ Product differentiation limited
◦ Easy entry and exit of firms
◦ Close substitutes
◦ Cigarette, Detergent, Biscuits, Toothpaste
OLIGOPOLY
◦ Few firms in the market: Telco, Airlines, Beverage, News
Media, Big Tech, Auto Makers
◦ Large market shares
◦ Significant product differentiation possible
◦ Difficult to enter market; Patent or Capital Requirement
or strong dealer network or advertisement
◦ Interdependence: Price, Advertisement
◦ Cartel: OPEC
Duopoly Market
Two giants
Coke-Pepsi, Nagad-Bikash, Nike-Adidas, Netflix-Amazon Prime, Apple ios, Google Android
Can maximize profit by colluding or cooperating
Problem: Lack of Trust
How to determine Market Structure?
The Herfindahl–Hirschman Index (HHI) is a common measure of market concentration of an
industry
Formula:

HHI = 10000 monopoly

HHI greater than 2500 but less than 10000- Oligopoly
HHI greater than 1500 but less than 2500- Monopolistic
HHI less than 1500- Perfect competition
TELCO MARKET STRUCTURE:
USING HHI
Company Market Share
GP 46%
ROBI 29%
BANGLALINK 21%
TELETALK 4%
WHAT IS TELCO SECTOR’S HHI &
MARKET STRUCTURE?
HHI VALUE= 46^2+ 29^2+21^2+4^2
HHI=3414>2500
SO, TELCO INDUSTRY OF BANGLADESH IS OILIGOPOLISTIC IN NATURE
THANK YOU