![]() The price of gasoline is closely linked to the price of oil, which is a component of gasoline, thus as the price of oil falls, the price of gasoline typically will fall. This is because of concerns such a policy would have on income distribution. Telecoms, internet, and national defense are all examples of markets that experience some form of natural monopolies. For example, imagine a consumer goes to purchase gasoline for their vehicle and there is only one firm that owns all the gasoline stations in the city. However, although she first noticed the result, she did not advocate that this would be a good policy, unless the subsidy was financed by taxing the monopolist's rents. This is an old result that goes back to Robinson (1934). Utility Companies: A typical example is energy utilities monopolizing a local market due to having exclusive access to the infrastructure that delivers electricity and gas to homes and industries in certain areas. At the same time, it is far more efficient for one firm to provide the whole of the market. It has exceptionally high fixed costs imagine setting up a new mast system that spans from the energy plants to each house. The monopolist can set a price, but the resulting quantity is determined by the consumers willingness to pay, or the demand curve. This requires lump sum taxes to be an available tax instrument, so that raising the money for the subsidy doesn't cause deadweight loss itself. The energy grid is an example of a natural monopoly. In fact it is possible to completely remove the deadweight loss with a subsidy. If these are lump-sum taxes then they do not affect the deadweight loss as they are non-distortionary and do not affect prices. ![]() One issue may be that additional deadweight loss is caused by the taxes required to finance the subsidy. Monopoly example 1: Microsoft Microsoft is a computer and software manufacturing company. The subsidy itself does not increase the deadweight loss, because the only thing it does is reduce the price and there are no other effects. ![]() While these companies did not face the pressures of a. Since the subsidy redices the price, the deadweight loss decreases. In the decades that followed, local monopolies supplied power for individual American households. This is because the deadweight loss comes from the price being too high (higher than the marginal cost), which leads to not enough goods being consumed in equilibrium. By definition, monopoly is characterized by an absence of. The deadweight loss from the monopoly decreases. A monopoly situation in which a single company or group owns all or nearly all of the market for a given type of product or service. ![]()
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