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The Costs and Benefits of Monopoly

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In this video, we explore the costs and benefits of monopolies. We cover how monopolies and patents breed deadweight loss, market inefficiencies, and corruption. But we also look at what would happen if we eliminated patents for industries with high R&D costs, such as the pharmaceutical industry. Eliminating patents in this case may result in less innovation and, specifically, fewer new drugs being created. We also consider some of the tradeoffs of patents and look at alternative ways to reward research and development such as patent buyouts and using prizes to foster innovation. Microeconomics Course: http://bit.ly/20VablY Ask a question about the video: http://bit.ly/1RnHxr9 Next video: http://bit.ly/1XMYb62 Help us caption & translate this video! http://amara.org/v/GSLL/
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Text Comments (6)
Desert Lizard (1 year ago)
monopoly makes you rich regardless of whatever you are talking about
abrahamchapman (2 years ago)
What they said about drug prices dropping to marginal cost when patents expire is no longer true. Recently, generic drug companies have been hiking the prices of generic drugs as well. How can this be if there's no longer a monopoly on the drug patent? Obviously profiteering is the rule of the land, not economics
Michel Salazar (3 months ago)
Aren't generic drugs also regulated by the FDA, thus discouraging and limiting the entry into this industry and giving the ones already available some sort of market power? I'm not sure that was the reason for what u said but yeah, the drug industry is heavily regulated.
Ion Sterpan (1 year ago)
There are many reasons for monopoly positions besides patents such as economies of scale or, more often, barriers to entry. Even when a patent expires, there are other causes of monopoly positions left in place. Because the pharmaceutical industry suffers from barriers to entry, drug companies afford to hike prices of drugs whose patents have expired. The economic logic of the monopoly profits still accounts for "the rule of the land", which is making monopoly profits from monopoly positions, secured with political and regulatory means.
samuel huerta jr (3 years ago)
💯💯
nacoran (3 years ago)
It's funny, I've thought about a lot about some of these ideas.  I like the idea of different prices for different people, particularly for things like tickets to live entertainment events.  They do that to an extent with backstage passes and better seats, but once you get to the nosebleed section scalpers get most of the extra money or, if the show doesn't draw enough people to sell out you either get the scalpers trying to dry up the supply (if it's close) or empty seats.  I suspect that, especially since so many arenas can make extra money on concessions once they get people through the door that a carefully constructed auction would work well.  I think I'd start with the prime seats, and set an early close for that auction.  To encourage people to bid during the auction but still make sure all the seats in that block are sold I'd run it as a series of auctions- say you want to deal with the first row seating.  You run an auction, set to end x number of days before the show, you set a reserve and take secret bids.  At the end of the auction you sell to any bidders that met the reserve.  If you have seats left over, you have a second auction, and set your reserve lower.  Repeat as many times as you think it's profitable to do so.  Have any tickets that don't meet those reserves available at the door.  The idea that the seats might go in an earlier auction should get people to bid early.  Do the same for other rows of seating, grouping seats of similar quality together.  Ideally the venue, if they are booking you, should be willing to take some risk on selling the last seats at a discount, since they can still make money on concessions.  Although there is something oddly democratic about the ticket line for a rock show I suspect that the extra revenue would actually let bands play slightly larger arenas, which would mean more fans would actually get to see the show. The other place that I'd like to see pricing differences depending on who you are also involves tickets, but not entertainment tickets.  The good old parking ticket/traffic ticket is, in some countries, based on your income.  Seems like a good idea, since their ideally supposed to discourage bad behaviors.  A $75 ticket would ruin some people's monthly budget, but it's not much of a deterrent for someone who is making high six figures.  (Or at least make it so tickets increase in price the more of them you get.  I remember seeing someone who got a ticket every day for parking illegally.  They owned a business nearby.  They just considered it a parking fee. For pharmaceuticals, I do like the X prize model a lot.  It seems the other group, besides the government, that might have a vested interest in that would be the HMOs.  It would both lower their drug costs and, if they targeted prizes for things that improved their members health at a better price point (a good cholesterol drug instead of paying for heart surgery) it would give them double savings- the problem there would be trying to either to get a bunch of HMO's to chip in evenly based on market share or to figure out what to do when Kaiser suddenly owns the patent on a wonderful new drug and Blue Shield wants to give it to their patients (perhaps a little quid pro quo if Blue Shield comes up with something?

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