February 2016
Beginner to intermediate
500 pages
33h 40m
English
We have examined how a monopoly behaves in the current period, ignoring the future. For many markets, such an analysis is appropriate as each period can be treated separately. However, in some markets, decisions today affect demand or cost in a future period, creating a need for a dynamic analysis, in which managers explicitly consider relationships between different periods.
In such markets, the monopoly may maximize its long-run profit by making a decision today that does not maximize its short-run profit. For example, frequently a firm introduces a new product—such as a new type of candy bar—by initially charging a low price or giving away free samples to generate word-of-mouth publicity or ...