[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

United States
Japan
PRICE (p )
p 1
PRICE (p )
Opportunity
for
middlemen
Marginal
cost curve
Demand curve
Marginal revenue curve
p 2
Q 1
Q 2
QUANTITY (Q )
Marginal
cost curve
Demand curve
Marginal revenue curve
QUANTITY (Q )
Figure 12.6
PRICE DISCRIMINATION
A monopolist that sells products in two different countries may find itself facing different
demand curves. Though it sets marginal revenue equal to the same marginal cost in both
countries, it will charge different prices.
customer uses. If the company worries that large customers charged the same high
prices as its small customers might install their own electric generators, or switch to
some other energy source, it may lower the price to them. An airline with a monopoly
on a particular route may not know whether a customer is buying a ticket for
business purposes or for a holiday trip, but by charging more for refundable tickets
or tickets purchased at the last minute, it can effectively discriminate between business
travelers and vacationers. Business customers are more likely to need the flexibility
of a refundable ticket or to make their travel plans at the last minute, while
vacationers have many alternatives. They can travel elsewhere, on another day, or
by car or train. Such business practices enable the monopolist to enjoy greater profits
than it could if it charged a single price in the market. Firms facing imperfect competition
also engage in these practices, as we will see. Airlines again provide a telling
example. Though the Robinson-Patman Act, which Congress passed in 1936, was
designed to restrict price discrimination, it is only partially successful.
Economies of Scale and Natural
Monopolies
The technology needed to produce a good can sometimes result in a market with
only one or very few firms. For example, it would be inefficient to have two firms
construct power lines on each street in a city, with one company delivering electricity
to one house and another company to the house next door. Likewise, in most
locales, there is only one gravel pit or concrete plant. These situations are called
natural monopolies.
ECONOMIES OF SCALE AND NATURAL MONOPOLIES ∂ 267