...MONOPOLY BRAINSTORM WORDS AND IDEAS PERFECT COMPETITION MONOPOLY PERFECT COMPETITION VS. MONOPOLY MONOPOLY MONOPOLY Raw materials and inputs Restricted ownership Sunk costs Location Economies of scale SOURCES OF MONOPOLY POWER Government restrictions CHAPTER 15 Cost Average total cost 0 Quantity of Output ECONOMIES OF SCALE Natural monopolies ! MONOPOLY 319 Figur e 15-1 E CONOMIES OF S CALE AS A C AUSE OF M ONOPOLY. When a firm’s average-total-cost curve continually declines, the firm has what is called a natural monopoly. In this case, when production is divided among more firms, each firm produces less, and average total cost rises. As a result, a single firm can produce any given amount at the smallest cost. CHAPTE LEGAL RESTRICTIONS: PATENTS Costs and Revenue Price during patent life Price after patent expires Marginal cost Marginal revenue 0 Monopoly quantity Competitive quantity Demand Quantity T HE Wh mo dru mo abo mak pat firm it m the pric DEMAND, ELASTICITY AND TOTAL REVENUE DEMAND AND MARGINAL REVENUE Demand: P=10-Q MR: P= 10-2Q When marginal revenue is … then demand is … positive, price elastic. negative, price inelastic. zero, unit price elastic. A firm would not produce an additional unit of output w INmarginal RESUME… revenue. And, assuming that...
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...In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Suppose that, instead of many sellers, there are only a few, or even one. Each seller provides a substantial part of the market supply. As a result, the market price will be affected whenever he varies the amount he supplies of the commodity. In other words, he is faced with a downward sloping demand curve. Similarly, on the buying side, when any buyer takes a significant proportion of the total market supply, he will be faced by a rising supply curve. In both cases we have some elements of ‘imperfect competition’. Monopoly is always characterised by number of peculiarities: 1) One firm and many buyers, that is, a market comprised of a single supplier selling to a multitude of small, independently acting buyers; 2) A lack of substitute products, that is, there are no close substitutes for the monopolist’s product; 3) Blockaded entry, that is, barriers to entry are so severe that is impossible for new firms to enter the market. In static monopoly the monopolist is in a position to set the market price. However, unlike a perfectly competitive producer the monopolist’s marginal and average revenue curves are not identical. The monopolist faces a downward-sloping demand curve and the sale of additional units of its product forces down the price...
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...Introduction to Economic Analysis- 153400003 AS1 Using examples, discuss critically the costs and benefits of monopoly in modern economies. Richard Itaman Student Name: Allegra Campinoti Student ID: 628548 Word Count: 2100 Monopoly is defined as “a market served by a single seller of a product with no close substitutes.” (388 ,Frank and Parker 2007) For a monopoly to be successful there can’t be any close substitutes that are able to provide a similar product or service the firm is offering. Monopoly can be formed if one or more combinations of five main factors are fulfilled. The first being exclusive control over important inputs, meaning that the firm has a unique product which is very hard to emulate. The second that it exploits economies of scales, the long-term average costs of the production of a certain quantity of a product will be much lower if only one firm is the producer. The third is the existence and use of patents, something that gives the right to a firm for the exclusive use and benefits of a certain idea produced by the firm. “ The protection from competition afforded by the patent is what makes it possible for the firm to recover its costs of innovation.” (390 ,Frank and Parker 2007) If patents were not present competition would cause price to reach marginal cost and the innovation and development would have a much slower pace. The fourth factor is Network economies; this occurs when the consumer’s demand of a certain product increases so much...
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..."Monopoly" refers to a situation where only one company is providing a unique good or service. Because the firm in question is the only place where the good or service can be found, they have the ability to charge whatever they want, to the detriment of market competition that is the foundation of a healthy economy. I think that the top four characteristics of a monopoly is: 1) they are the only one firm in the market (no competition). 2) Substantial barriers to entry by other firms exist. 3) Lack of substitute product for the monopolist's good. And finally 4) Firm is a price-maker, rather than the price-taker. There are many upsides to being a monopoly, but you must be aware of the barriers there are upon entry. Such as patents, limited pricing in the market, and advertising and marketing just to name a few. There are several different types of monopolies. Two of those would be a Natural Monopoly and a Government Monopoly. A Natural Monopoly occurs when the type of industry makes it financially impractical, if not impossible, for multiple companies to engage in the business. In a Government Monopoly the government will pass laws reserving a specific trade, product or service for government agencies. The legal barriers that are put up prevent other companies from competing with the government. Microsoft is a company that is a debatable monopoly. Microsoft was under investigation a few years back for their antitrust behavior. They were allegedly accused of abusing their monopoly...
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...Introduction Monopolies are known to be the companies that possess an entire market power in their particular industry. When talking about monopolistic companies, we usually reference to a single seller of goods and services in the market. Monopolies have the ability to control prices on their production. This extreme form of imperfect competition in the market has a negative influence on consumer’s choice. In this paper I will discuss the main features of monopolies and its role in the market. Characteristics of a monopoly One of the main characteristics of a monopoly is that it is always one single seller of goods and services in the market. Monopolistic companies do not have any competition which gives them a great advantage of being able to control the prices on their production. The main goal of a monopoly is to make the maximum possible profit by using its price-setting power. Another feature of a monopolistic company is the fact that since there only one firm in the market, there is no possible way for any other company to enter this market. Of course, this perfect monopolistic company does not exist in the modern world. Today we can see very few examples of monopolies. One of them is the famous Microsoft Corporation, one of the largest PC software providers. Microsoft has been dominating in the market for years and used to own a great percentage of this industry’s market. The company made it almost impossible for its competitors to survive, by offering their...
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...Monopoly INTRODUCTION Monopoly is an economic situation in which only a single seller or producer supplies a commodity or a service. For a monopoly to be effective there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. This enables the seller to control the price. One or more of the following elements are of great importance in establishing a monopoly in a particular industry: (1) Control of a major resource necessary to produce a product, as was the case with bauxite in the pre-World War II aluminum industry. (2) Technological capabilities that allow a single firm to produce at reasonable prices all the output of a particular commodity or service, a situation sometimes described as a “natural” monopoly; (3) Exclusive control over a patent on a product or on the processes used to produce the product. (4) A Government franchise that awards a company the sole right to produce a commodity or service in a given area. HISTORICAL BACKGROUND Economic monopolies have existed throughout much of human history. In ancient and medieval times dire scarcity of resources was common and affected the lives of most human beings. When resources are extremely scarce, little room exists for a multiplicity of producers for many products and services. The medieval guilds, for example, were associations of merchants or artisans that controlled output, set terms for entering a trade, and regulated...
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...Monopoly Introduction If there is only one firm, can the firm charge whatever they want? Well, that depends on the nature of the good. If consumers have enough options so that good substitutes exist, then the power of the monopolist is limited by the other choices available to consumers. If there is literally no choice, then the monopolist can charge so much that they threaten the very survival of consumers by extracting all discretionary income. All monopolies have one defining characteristic, as they reduce production the price rises. Monopolists take this effect into account and choose the amount that maximizes their profit. There are several connections to trade. We tend to feel far better about our monopolist overcharging their consumers than we do about their monopolist overcharging ours. This is occasionally cause for concern as OPEC illustrates. More commonly, trade challenges monopoly power wherever it occurs by increasing competition and providing more substitutes. The Basic Theory Instead of assuming that no one firm influences the price, this time we assume firms have a unique product and at least some control over price. The more they produce the lower the price and the less they produce the higher the price. This influence is not absolute, they can not charge any price they want. If the price is too high consumers will make do without the good or find a substitute. If the good is an essential with no substitutes then allowing...
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...government intervention and assistance for companies attempting to enter monopoly and oligopoly markets is easy, assured entrance into the market. In 1999 American Airlines decided to crush competition by drastically reducing the cost of airfare and increasing benefits to consumers. The American government’s Department of Justice chose to file a civil lawsuit against American Airlines (Sniffen, 1999). Rather than spend tax payer dollars to initiate and carryout a lengthy expensive law suit, the government could have, invited other businesses to enter this market by providing temporary incentives. This would have naturally kept the price at a decent level, and would have kept companies in healthy (for the consumer) competition (Sniffen, 1999). The Government already provides a vast array of incentives to start, maintain and excel in the world of small business. To the extent that with the government incentives to start and maintain a small business, that the small business could easily become the next biggest thing (“Government incentives for Business,” 2011). Taking this into consideration, the government and consumers would benefit from taking this notion a step further and providing temporary incentives to these small businesses to enter more secured market arenas. With the government’s assistance, small businesses have the potential in breaking down what was once an impenetrable barrier into a monopoly or oligopoly market, create fair pricing and healthy competition amongst...
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...A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity (this contrasts with a monopoly which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry).[1] Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.[2] The verb "monopolize" refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is business entity that has significant market power, that is, the power, to charge high prices.[3] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[4] A monopoly is distinguished from a monophony, in which there is only one buyer of a product or service ; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations such that one or a few of the entities have market power and therefore interact with their customers (monopoly), suppliers (monopsony) and the other companies (oligopoly) in a game theoretic manner...
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...Monopoly The central theory in all of the profit-maximizing outcomes rests on the idea that marginal revenue should equal marginal cost. The same is true in the case of a firm with monopoly power. Before we discuss the profit-maximizing outcomes, it is important to understand what is meant by monopoly and how does it affect revenues and costs. A firm has a monopoly if it is the only supplier in the industry of that particular product or products. Moreover there are no close substitutes. Therefore the consumers in this market have no choice but to buy from that one firm or not at all. For this reason, the monopolist is known as a price-maker because it has the opportunity to set prices at any desired level (Mankiw, 2000). Monopolies occur largely because of the existence of barriers to entry in a given industry. These barriers include legal barriers (patents and licenses), economic barriers and natural barriers. Under legal restrictions, government allows anyone firm a special right to manufacture or trade that particular product. This happens usually when a firm acquires a patent or a special right to market that particular product. Also sometimes the government would grant any one organization to dominate an industry such as a telecom firm that happens to be the only firm providing telecommunications services. Other barriers include control of a scarce resource or input as in the case of the South African diamond syndicate. Technical superiority as in the case of Microsoft...
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...Introduction to Economic Analysis- 153400003 AS1 Using examples, discuss critically the costs and benefits of monopoly in modern economies. Richard Itaman Student Name: Allegra Campinoti Student ID: 628548 Word Count: 2100 Monopoly is defined as “a market served by a single seller of a product with no close substitutes.” (388 ,Frank and Parker 2007) For a monopoly to be successful there can’t be any close substitutes that are able to provide a similar product or service the firm is offering. Monopoly can be formed if one or more combinations of five main factors are fulfilled. The first being exclusive control over important inputs, meaning that the firm has a unique product which is very hard to emulate. The second that it exploits economies of scales, the long-term average costs of the production of a certain quantity of a product will be much lower if only one firm is the producer. The third is the existence and use of patents, something that gives the right to a firm for the exclusive use and benefits of a certain idea produced by the firm. “ The protection from competition afforded by the patent is what makes it possible for the firm to recover its costs of innovation.” (390 ,Frank and Parker 2007) If patents were not present competition would cause price to reach marginal cost and the innovation and development would have a much slower pace. The fourth factor is Network economies; this occurs when the consumer’s demand of a certain product increases so much...
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...Introduction Monopolies are known to be the companies that possess an entire market power in their particular industry. When talking about monopolistic companies, we usually reference to a single seller of goods and services in the market. Monopolies have the ability to control prices on their production. This extreme form of imperfect competition in the market has a negative influence on consumer’s choice. In this paper I will discuss the main features of monopolies and its role in the market. Characteristics of a monopoly One of the main characteristics of a monopoly is that it is always one single seller of goods and services in the market. Monopolistic companies do not have any competition which gives them a great advantage of being able to control the prices on their production. The main goal of a monopoly is to make the maximum possible profit by using its price-setting power. Another feature of a monopolistic company is the fact that since there only one firm in the market, there is no possible way for any other company to enter this market. Of course, this perfect monopolistic company does not exist in the modern world. Today we can see very few examples of monopolies. One of them is the famous Microsoft Corporation, one of the largest PC software providers. Microsoft has been dominating in the market for years and used to own a great percentage of this industry’s market. The company made it almost impossible for its competitors to survive, by offering their...
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...Monopoly Public interest is virtual another way to describe consumers’ wants, namely, maximising utility at the lowest price and the best quality. This concept has been contributed by Jeremy Bentham and J.S. Mill referred to “the greatest happiness for the greatest number”. (Handout, 2004, the ‘public interest’) In the market structure, one extreme form, imperfect competition is known as monopoly. The following is going to discuss that monopoly is always against the public interest. To compare with perfect competition (another extreme form), the potential strengths and weaknesses of monopoly will be presented and examine which one can be best to serve the public interest. First of all, a monopoly literally means a sole seller, it occurs when there is only one firm in the whole industry. But in practice, it is difficult to exist. Thus more than 25% market share in the industry is identified as monopoly by its legal definition. Meanwhile monopoly also exists in a certain region, e.g. a local water company dominates the local market as ‘natural monopoly’ which means that market may be too small to support more than one firm to achieve significant economies of scale. A major characteristic of monopoly is high barriers to entry. For example, a specific legal barrier protects monopoly in term of patent on essential processes, copyright and licenses and so on. At the same time, monopoly protects itself from competing through a...
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...Explain the main characteristics of a monopoly (15) A monopoly market structure is when the level of competition in the market is very low as it is dominated by one firm which has a market share of over 25%. Examples of markets which are structured as monopolies include public transport the TFL service, companies which provide water, and also gas and sewage services. In these services especially it is unreasonable and improper for there to be a large number of providers within the sector. There are also natural monopolies which exist due to government intervention. Monopolies are price makers, in nature, this is because of their dominance in the market that they have no competition when they rise prices consumers have no where else to go so they increase profits. This is why monopolies can be seen as very damaging to markets. Barriers to entry are very high within monopoly markets because of regulations, permits, fees etc. and this creates a market where competitive entrepreneurs will still have extreme troubles trying to cope in. Most legislation is passed in favour of large firms making it even harder for small firms to start up. Consumers have huge trust in monopoly firms because they have existed for a long time and they will provide quantity and quality goods due to economies of scale this creates a huge task for smaller firms trying to sway the minds of consumers. As the barriers to entry are high it means start up costs are also very high, this leads to barriers...
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...Economics November 25, 2013 Monopoly For does who did not know, google is a monopoly. A monopoly is A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. They are usually the only company with no competition which leads to high prices and inferior goods. Google is now taking advantage of its monopoly position, searching to charge companies using placement in Google Shopping. This would cause high prices for consumers. According to Consumer Watch Dogs, they say ““Google used classic monopolistic tactics to largely clear the field of competitors and then changed its business model to maximize its profits by charging merchants for placement,” said John M. Simpson, Consumer Watchdog’s Privacy Project Director. “Merchants then charge consumers more for the product to cover their payment to Google.”In their studies they compared prices on the same item on 3 competing shopping engines. These 3 were ; Shopzilla, Pricegrabber, and Nextag. Checking prices for 14 items this month, Consumer Watchdog found Google listings as much as 67 percent higher. Some suggested that Google’s business tactics enabled by its monopoly position only damage competing services. Consumer Watchdog said Google hurts consumers in two ways. “Universal Search populates the top of the results page mainly with results from Google’s own services. This moves the Internet giant closer to an ecosystem where real consumer choice no longer...
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