Case Study Of A Monopolistic Market

Decent Essays
Unlike competitive markets consisted of a large number of producers which compete with one another to satisfy consumer’s needs and have no influence on price, monopolistic markets are made up of only one producer who is able to control prices in the market. Stager (1992) notes it is the case of a pure monopoly which appears when a commodity is produced by only one producer and it does not have any close substitutes (cited in Manesh and Karimani, 2017). Evidently, in the absence of alternative products, the producer does not compete with others. He furthermore states this tendency happens rarely in real world since majority of commodities could be replaced by other raw materials. It is, therefore, considered the definition of monopoly relies…show more content…
Thus, when a manufacturer chooses monopolistic behaviour, the price of a product is higher and the quantity will be lower than in the competitive market. Following this, the output is set to be Pareto inefficient as there are a vast number of consumers willing to purchase a product at prices between marginal cost and price set by the monopolist (ibid.). This indicates there is a room for Pareto improvement, in other words, we can make both sides of the market better off without making anyone worse off. Varian (2014) explains this inefficiency by giving another distinctive feature of the monopolist’s behaviour – the producer in monopolistic market has to keep an eye on expanding output’s influence on the revenue coming from inframarginal units. The reason is it makes the monopolist sell current products at lower price than usual. If there was not increasing output’s effect on the price of other inframarginal units, the monopolist would sell extra units of a product at discounted prices
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