Governments frequently regulate natural monopolies, yet people often complain that prices of regulated goods or services are too high. If you were a regulator, how would you decide on the proper price and output of a monopoly product? Find an article that deals with a monopoly and comment on the article.

So far regulated monopoly is concerned, it can be regulated through marginal cost pricing & average cost pricing. Marginal cost pricing implies the rule of setting the price equivalent to marginal cost. But, this will lead to economic losses for the regulated monopolists & their incentive to supply qualitative products will be reduced. Besides, it is possible for the regulated monopolists to exit the market.

Coming to the average cost pricing, the regulated monopolists should fix the price equivalent to average total cost. A Public Utilities Commission can also use cost and demand information to order the firm to produce where average cost is equal to demand.

Due to this, the regulated monopolies will earn zero economic profits. The efficiency problem would remain to some degree, since price would still be above marginal cost, but it isn’t as far from marginal cost as it would be if the firm was allowed to maximize profit without regulation. So, as a regulator of monopoly, I will decide to set the monopoly price = ATC and the corresponding output.

The reference article link is given below:

http://fifthdecade.wordpress.com/2007/05/27/that-other-computing-monopoly/

That other computing Monopoly

Published 27 May, 2007Adobe , Apple , Business , Internet , Microsoft , Technology , Web , iPod

A lot has been written about Microsoft and it’s stranglehold over desktop and office systems, and rightly so as that company has shown they do not use their monopoly power ethically. They claim to be innovators, but their latest Operating System, Microsoft Vista, is no more than a copy of Apple’s OS X - it even looks the same. But enough of that. We all know about that monopoly. But are there any others?

Many people complain about the growing prevalence of the iPod/iTunes mix, but that is far less pervasive IMO with far more media providers, and no hardware or software lockins. When someone brings out a competing product that is more stylish and easier to use, Apple will not be able to force consumers not to buy it as Microsoft can with Windows and Office.

The other monopoly in computing though is one not often written about, but one that is nonetheless becoming problematic for consumers, particularly European ones.

I am talking here about Adobe/Macromedia.

Their stranglehold over the graphics market (particularly web design) is awesome. When the two companies merged recently I was amazed the US competition authorities didn’t complain about the reduction in competition this would cause. The result has predictably been to create a monster that is abusing its monopoly power with hugely exorbitant prices for its software.

One good example of this is their newly launched CS3 product. The price in Europe is nearly twice that of the identical US product when measured in USD terms. It’s also about twice the price of the Macromedia Dreamweaver/Fireworks bundle I bought a few years ago.

In former times, pre-merger, the top applications for web design were Macromedia Dreamweaver and Adobe’s GoLive! which wasn’t quite as good, but at least the competition between them kept prices down.

Since the merger in Dec 2005, Adobe has had a free rein to raise prices because there is nobody to undercut them anymore. There may be other editors out there, but none with the market penetration of Adobe’s package. It is widely expected that eventually Dreamweaver will have totally replaced GoLive! to the detriment of consumer choice as well. And that means prices will go up. Again.

One sure sign of being a near-monopoly is when you try to hide the fact by deflecting attention from your own business to that of others - hopefully onto others who are monopolists. Adobe’s boss, Bruce Chizen: “Microsoft is a $50 billion monopolist who’s in the software business. I take them very seriously.” Maybe he’s trying to emulate them?

The above article analyzed the monopoly power of Microsoft. Microsoft misutilizes the monopoly power by copying the Apple’s OS X and marketing them as their latest Operating System, Microsoft Vista. Besides it is abusing its monopoly power with hugely exorbitant prices for its software. So far their newly launched CS3 product is concerned they are charging in Europe twice than U.S price. Likewise Microsoft is not using the monopoly power ethically.