Week 4 -- Monopolist and capacity restriction

If a monopolist seller decides to restrict capacity, it’s possible that the competition generated by the overabundance of buyers might actually give the monopolist more profits than otherwise, even though the overall surplus may decrease. The same argument holds true for a monopsonist buyer. I am saying ‘may’ and not ‘will’ because it would depend on the various WTP and WTS of the various parties. Take a look at the monopolist example at the end of week 4’s lecture notes if you have any doubt.