This chapter describes the theory of monopoly. In a monopoly market, there are many buyers and a single vendor of a good. The single vendor is called the monopoly. Buyers are assumed to be price takers, and their demand as a function of price is given, as in the case of perfect competition, by an aggregate demand function. One reason one might find a monopoly industry is because, while other companies can enter this industry, the monopoly acts in a way that forestalls potential competitors. If substitute products are produced and sold, they restrain the monopoly's market power by flattening and shifting-in the monopoly's demand curve. The idea of substitutes for a monopoly product comes up in another context — that of multigood monopolies. The chapter then looks at nonlinear pricing.
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