Deregulation increases the chance monopolies will form

Elastic Demand Elasticity (PED) = % change in quantity demanded / % change in price If the % change in demand is ≥ the % change in price then the demand is affected by the change in price. If the % change in demand is < the price than the demand is unaffected by the change in price. More elasticity means higher prices are more likely to reduce the demand, and lower prices are more likely to increase the demand. I believe by “elastic markets” Pro is actually referring to Inelastic markets, where the change in price is > the demand. There is no such thing as a perfectly inelastic market, because there is no equation where change in quantity / by change in price = 0, because you can’t divide by 0. Total Revenue (TR) is Maximized at the Price Equilibrium, where change in demand = change in price. Brands vs Monopolies Pro claimed that iPod and Windows are monopolies, when in actuality they are brand names. These brands are in competition with other brand names, as well as generic brands. Pro claims that their success is due to their size, when in actuality it is due to the quality of their product. This is why Mac constantly attacks the quality of Windows in their commercials. The iPod by no means has a monopoly; there are a large number of MP3 players competing with the iPod. (ex. Rio, Cisco, Belkin, and Generic). As Pro so appropriately pointed out, as soon as innovation slows down, smaller companies will seize the customers of the larger brands; this is why successful companies spend most of their budget on research and development. MP3s are luxuries, which makes them highly elastic markets, not an inelastic market, so prices affect the demand. Pro gives other examples of Brands, which he tries to pass off as monopolies; such as Band-Aides, or Q-Tips. These are not monopolies, they are Brand Names; the fact that all cotton swabs are mistaken as “Q-Tips” is an example of good branding, not an example of a monopoly. The goal of branding is to conflate your brand-name with the product to save on advertising costs. It does not eliminate competitors, but it does give you an advantage. Regulations cannot eliminate brand names. Conditions for a monopoly to form Pro has argued that there are 3 conditions for a monopoly to form; this time he correctly uses the term inelastic rather than elastic. First pro claims that to be inelastic the market price must have little effect on the demand for quantity. Pricing above the equilibrium causes a deadweight loss of demand, creating a TR loss, as a result of the PED. In other words, the market is already priced below the equilibrium. His second condition is that they are finite, and nonrenewable; such as oil. The lower supply means the equilibrium of price and quantity are also lower. His third condition is that once monopolies form, they would price low in order to eliminate competition. The brunt of this argument is that companies will operate at a loss in order to bankrupt competitors. The flaw in this argument is that in order to keep competition out they must maintain their low prices to prevent the entry of new competitors. Unless the monopoly gains the support of the government they would be unable to maintain the low prices, and would be forced to raise prices. By raising prices they allow for the reentry of competition. Oil Industry Regulations Pro claims that the oil industry is “completely unregulated” because oil companies can move their business overseas; this claim is completely false. Oil companies are subject to the drilling regulations of the country where the oil reserves reside. BP is subject to US oil restrictions when drilling off the coast of Texas and restrictions on the keystone pipeline has also restricted international oil companies from tapping the reservoir. If anything regulations have restricted the supply. Restrictions on drilling would result in a deadweight loss, because the available supply would not meet the demand; this hurts the TR of the oil industry, and prevents new companies from entering the market. Price As I was trying to get across to Pro in the forums, just because you have something does not mean it’s valuable. The Demand determines the price relative to the supply. A Demand surplus increases the value of a product; a demand deficit decreases its value. The demand limits the maximum price per unit due to the PED. The supply limits the maximum quantity of units capable of being produced. Say the supply of oil is fixed at 2 units; an increase in demand from 2 to 3 units would drive up the value, while a decrease in demand from 2 to 1 unit would decrease the value, due to a deadweight loss. Pro claims that because price is relevant to the supply, the price can be determined by a monopoly, by restricting the supply. This is just plain wrong; if the supply was restricted there would be a deadweight loss, resulting in a loss of TR. The only way to maximize revenue would be to price at the equilibrium, which a monopoly cannot do without government intervention. Only a Monopsony can control prices, by limiting the demand thereby forcing the suppliers to lower or raise prices to the equilibrium. OPEC OPEC is not a monopoly. If OPEC overprices their oil it does not affect the price our oil exports. When OPEC increases the price of their oil, while other countries continue to export oil, they end up losing their trade partners to the lower priced competitors. The countries with a larger supply of oil can only dictate higher prices after their competitors maxed out their exports; this is not a good strategy. ’ If regulations were implemented to create a price floor, to prevent low trading, it would result in a deadweight loss of demand, resulting in the supplier losing TR. If regulations were implemented to create a price ceiling, to prevent high trading, it would do more to prevent competition than promote it. Tuna The Tuna example further supports the demand argument. Pro said himself “there is no fish more important than Bluefin Tuna”, therefore when very few are caught, the demand cannot be met resulting in an increased price. If it was a different fish the same catch would not be as valuable, because the fish would not be as valuable to the consumers. As pro said, “Japanese consumers value this fish over all others for sushi”. If the Tuna went extinct, the Japanese would not pay through the nose for Sushi; instead they would each less sushi and switch to less expensive meals. Mitsubishi would only hurt itself if the Tuna went extinct, as it would be more profitable to sell their surplus of tuna when the catch is low; which is a more likely explanation for what they are doing. International Waters In regards to international waters, the nationality of the fishing-boat determines the country with jurisdiction over the fishermen. For example anyone aboard a US ship is subject to US laws. Furthermore, international laws and treaties govern international waters. Regulation Hurts competition and promotes monopolies. Monopolies cannot survive in the free market, for the very reasons pro pointed out. Monopolies form through predatory pricing, and superior products. If they cannot maintain innovation and low prices, they lose their monopoly. In order to maintain the monopoly government intervention is required; legal rights to innovations, outlawing competition, or regulations affecting price and/or production. International Economics: Theory and Policy, v. 1.0 by S. Suranovic Macroeconomics: Theory through Applications, v. 1.0 by R. Cooper & A. John Microeconomics: Theory through Applications, v. 1.0 by R. Cooper & A. John . http://www.straightdope.com... . http://www.bp.com...