Principles of Economics by Carl Menger Chapter 5.2A - Price Formation in Monopoly Trade

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What happens to prices when multiple buyers compete for a single good? In this video, we explore Carl Menger’s Principles of Economics, Chapter 5.2A: Price Formation in Monopoly Trade.
Previously, we looked at isolated exchange—two people trading based on their personal valuations. But what if one seller faces many buyers? That’s the essence of monopoly trade, where competition among buyers shifts how prices form.
Menger shows that in monopoly situations, the price range narrows as more buyers enter the scene. Imagine A owns a horse worth 10 bushels of grain to him. Buyer B1 values it at 80 bushels. Initially, the price could land anywhere between 10 and 80. But as more buyers appear—say B2 values it at 30, B3 at 50, B4 at 70—the competition forces the price upward, closer to the valuations of the top bidders.
Here’s the key insight: the final price will settle between the values assigned by the top two competing buyers. The horse will go to whoever values it the most, and they’ll pay just enough to outbid the next-highest offer.
The process mirrors an auction—buyers push the price higher, while the seller benefits from the competitive tension. Yet, just like in isolated trade, the exact final price still depends on negotiation and bargaining within the allowed range.
This chapter provides a foundational understanding of how competition shapes prices, both in simple trades and in modern markets.

❓ Questions This Video Answers:
-What is monopoly trade?
-How do prices form in monopoly situations?
-Why does competition among buyers raise prices?
-How does buyer entry affect the price range?
-What determines who wins the trade?
-Why does the price settle between top bidders’ values?
-How is monopoly trade different from isolated exchange?
-Is the final price fixed or negotiable?
-How does bargaining influence the result?
-What can this teach us about modern markets?

00:00 - Introduction to the Price Formation in a Monopoly Trade
00:13 - Isolated Exchange
00:40 - Transition to Monopoly
01:30 - Multiple Sellers and Buyers
01:50 - Focus on Single Seller, Multiple Buyers
02:30 - Competition Among Buyers
03:08 - Summary of Monopoly Trade
03:30 - Outro

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