Market Power

Monopolistic Markets

-A theoretical construct that describes a market where only one company may offer products and services to the public -The opposite of a perfectly competitive market (an infinite number of firms operate) -In a purely monopolistic model, the monopoly firm can restrict output, raise prices, and enjoy super-normal profits in the long run -Does not adhere to standard pricing from balancing supply-side and demand-side factors -Sellers are in control

Market Power

-Ability of one participant in a market to influence the terms by which exchanges are made. -Essential ingredients: -Limited availability of viable substitutes -Ease with which buyers and sellers can weigh substitutes -Existence may enable possessor to wield influence over the use of resources to their benefit and to the detriment of other bargaining parties

Monopsony

-Buyer is in control -A monopsony occurs when a firm has a market power in employing factors of production -A monopsony means there is one buyer and many sellers -It often refers to a monopsony employer- who has market power in hiring workers -Does not adhere to standard pricing from balancing supply-side and demand-side factors -Supply curve faced by the monopsonist is the result of many small sellers' willingness to produce and sell product at any given price -Higher prices result in a greater quantity supplied, so the supply curve is upward sloping

Imperfections in medical markets

-Imperfect information -Price transparency -Barriers to entry -Third-party payers

Market Failure-Public Goods

-Markets distribute goods efficiently when people spend their own money to enjoy the benefits of consumption -Non-purchasers are excluded from the benefits of consumption -But in some situations, such as national defense and air traffic control, medical emergencies that present in the ER, these rules do not apply -Non-excludable and nonrival goods are called public goods

Market Failure

-Markets fail to allocate resources optimally when: -Firms/business have market power -When there are externalities in consumption and production -When the good produced is a public good

Price Discrimination

-Monopolist is able to charge different prices for the same product to different buyers, increasing profits -Conditions necessary for price discrimination: -Market segmentation is present -The product or service in the lower price market cannot be resold (a secondary exchange) in the higher price market -The demand elasticities in the two markets have to be different to make the practice worthwhile

Monopolist's Conditions

-Profit-maximizing monopolist will set prices and quantity such that marginal revenue (MR) is equal to marginal cost (MC) -Monopolist has ability to set price at any level desired -The price set will influence the quantity demanded -Total costs are the sum of total fixed costs and total variable cost

Government Intervention in Medical Markets

-Regulation -Price controls -Entry restrictions -Limits on new product development -Tax policy -Government failure

Simple Monopoly

-Supplier is the sole source of supply in the market -Demanders do not have any close substitutes -Barriers to entry of new sellers exist -Medical examples- only hospital in rural regions, only physician in town, only manufacturer of a medical product

Market Failure-Externalities

-The actions taken by individuals in the process of producing or consuming will have an effect on the welfare of others -An externality may be positive or negative, depending on whether it benefits or harms others: -Negative externality: +A factory that dumps toxic waste into a river shifts some cost of production to those downstream -Positive externality: +Medicine developed for one medical condition can treat another medical condition -Externalities can affect economic efficiency; normal markets have no way of accounting for them

Effect of Monopsony

-To induce suppliers to sell added quantities, monopsonists must offer higher prices -The price must be paid for all purchases, not just the additional purchases -Compared to perfect competition, the effect is: -To decrease price -To decrease quantity

Market Failure in Medical Markets

-Traditional sources of market failure: -Monopolies-(in small and rural communities, little competition; in larger, some have market power) -Externalities-(modern society is a breeding ground for communicable diseases; health regulations seek clean water, clean air, etc)

What are the differences between pure competitive markets and monopolistic markets?

Competitive Markets-an infinite amount of firms are supplying and operating. Monopolistic Markets-One firm is calling the shots. Does not adhere to standard pricing or supply and demand balancing. Seller is in control.

How can externalities, public goods and government intervention lead to market failure?

Externalities can cause market failure when it has a negative affect on the welfare of others. Public goods can cause market failure when goods aren't properly distributed. Government intervention can cause market failure when regulations such as price controls, entry restrictions, and limits on new product development negatively impact the market. Along with tax policies and government failures.

How do you define market power and market failure?

Market power-ability of one participant in a market to influence the terms by which exchanges are made. Market failure-when there's a failure of the market to properly allocate resources.

How do monopolies and monopsonies differ?

Monopoly-Large seller is in charge. Monopsony-Large buyer is in charge.

Non-rivalry

in consumption means that more than one person can enjoy the benefits of consumption without affecting the enjoyment of another

Non-excludability

results when the costs of preventing nonpayers from consuming are high