Monopoly pricing

This article describes a pricing strategy used by sellers, typically in markets that suffer from imperfect competition, significant transaction costs or imperfect information.
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Definition

Monopoly pricing is a pricing strategy followed by a seller whereby the seller prices a product to maximize his or her profits under the assumption that he or she does not need to worry about competition. In other words, monopoly pricing assumes the absence of competitors being able to garner a larger market share by charging lower prices.

Monopoly pricing requires not only that the seller have significant market power, possibly a monopoly or near-monopoly or a cartel of oligopolists, but also that the barriers to entry for selling that good are high enough to dissuade potential competition from being attracted by the high pricing. In particular, monopoly pricing is infeasible in contestable markets.

How it works

See the following:

• Determination of price and quantity supplied by monopolistic firm in the short run
• Comparative statics for demand and supply (section on the monopolistic case)
• Monopolistic response to demand and supply shocks