Lecture 6 - Market Failure & Gov. Intervention

The sixth lecture for Economics & Society by Kosmas Marinakis, PhD, on Market Failure. Price Regulation, Natural Monopolies, Antitrust and Public Goods.

Economics & Society
Lecture #6

Kosmas Marinakis, Ph.D.

Download slides:

00:00 Intro
02:35 6.1 Market Failure
34:36 6.2 Control in PC Markets
53:31 6.3 Control with Market Power
01:37:53 6.4 Antitrust
02:50:55 6.5 Externalities
02:52:08 6.6 Public Goods

Singapore Management University, Department of Economics & Office of Core Curriculum.

[LiuHongYing]

Hello Prof Marinakis! For the 2nd bullet point of slide 7, could I please clarify what you mean by "winners from regulatory intervention could compensate the losers can still be winners"? You went through this at 30:29, but I'm slightly confused by what you mean by winners "compensating" the losers?

I don't quite understand how this statement would work in the PC market. For example in slide 12 (price ceiling in the PC market - where winners are consumers along FE part of the DD curve, and losers are consumers along EA part of the DD curve + the producers), would the regulatory intervention of a price ceiling result in winners "compensating" the losers when the consumer surplus increases (area L > area M) despite producer surplus decreasing, hence resulting in a lesser overall deadweight loss despite the imposition of a price ceiling...? Sorry if this is not what your statement meant, as I have been rather confused. Thank you very much! :)

[giaphuong_phan]

Hi Kosmas,
For PS06-Q5, for the case where c <$200K, can I reason this:
In this scenario, Firm 2 may offer to fund the technology so Firm 1 wouldn't have to pay anything. However, if Firm 1 wants better deal, they could ask for a higher funding, as long as it is less than $200K. Therefore, depending on the bargaining power of the firms and the price of the technology, one firm may be better off than the other.

[lollalolla]

Hello Prof! At 51:53, will it also be right to assume that for the price floor to really work, the government will have to buy the surplus, leading to a loss in government revenue of CBQsQd? If so, will it also mean that the price ceiling may not be effective for governments with a limited budget? Thank you.

[jialinteh]

Hi Kosmas,
For natural monopolies, is it always the case that AC is above MC? Timestamp 1:33:55
Thank you!

[hur]

Hi professor, I would like to ask regarding predatory pricing, would it apply to the earlier days of Grab and Uber as they offered very low fares and incurred losses to price the other and other cab companies out of the market. If so, why is there no antitrust actions against them?

[claratomy]

Hi Prof, at 24:30 when you mention that there is abuse of market power, does it mean that monopoly power and market power are the same?

[makariostang]

Hi Prof, I"m trying to intuitively understand the change in surpluses for price floor and price ceiling. For price ceiling, a more inelastic demand curve means that consumers have a harder time finding alternatives to switch to hence they lose out on efficiency when quantity supplied falls. For price floor, a more elastic supply curve means that the increase in price might lead to a significant rise in supply but intuitively why is that inefficient?

[cherylcheng]

Hi Prof, after revisiting your lecture again, I am still confuse and have 3 questions to raise.
1. In slide 9, there was a point that mentions “Consumers along EA can no longer buy the good” is this because the quantity supplied has decreased and thus, there is insufficient quantity for the consumers along EA?
2. In slide 11, am I right to conclude that the winners from the price floor policy are the producers, whereas the losers are consumers along FC (because they are paying more) and CA (because they can no longer buy)
3. In slide 15, there was a point that mentions “Monopolist indeed wants to price at P1”. I do not really understand why this is so. I thought that a monopoly would always prefer to increase prices as they limit quantity?

Thank you!

[jialinteh]

Hi Kosmas,
Could you clarify the difference between vertical restriant and price discrimination please?
Is price discrimination is a broad term for giving different prices to different individuals (both companies/ individuals), while vertical restraint only applies to the supply chain?

Both vertical restriant and price discrimination also lead to unequal competition correct?

Thank you!

[rachelngle]

Hi prof! For PS06 question 1d, the answer mentions that below p2, the monopolist will make losses, hence, producing quantities implied by the MC curve. However, at least from p2 to p3, the price is still above the AC curve, hence the monopolist still makes profit (no losses incurred yet) and it produces a lower quantity not because its making losses but because that is just the profit maximization quantity. Is this understanding correct?

[Razey]

Hi Kosmas! As discussed in Slide 21, would a firm engaging in act of building excess capacity be a form of predatory behaviour in the market?

[Luhanqtpie]

Hi Prof :) Sorry if this is a redundant or stupid question. However i was wondering, if the fact that Macdonalds has some kind of exclusive contract for food delivery with Grabfood as it cannot be found on Foodpanda, Deliveroo etc, does this kind of fall under vertical restraints ? or is it just a method of being competitive ?

[junhao]

hi professor ! for the price ceiling for PC segment, with a pmax set, the quantity demanded will increase from q* to qD.. why arent the consumers consuming along B to A considered losers along those initially consuming from A to E? thank you!

[huixinchan]

Hi prof!
For PS06 1b) price ceiling placed at p4 would decrease consumption of the good not due to the fall in demand but because the monopoly will greatly decrease its production right ?

[DevAIMusic-u]

For L>M when demand is more inelastic, is it due to change in market equilbirum thus changes in area of the triangles?

[DevAIMusic-u]

Can fireworks be an example of non-rival good?
Eg: my neighbor buys and sets up fireworks, I didn't buy the good but I can enjoy the fireworks?