Economics of a Monopoly
Introduction
¡§Monopoly¡¨ is defined by its market power. Monopolies are always known to possess an exclusive control over its particular market and that gives them the sovereign authority to control the prices for its goods or services (Dictionary.com Unabridged (v1.1), 2006). Hence, they represent the market. They indeed have detrimental effects on consumer and social welfare.
In this paper, section 1 will focus on the theory and economics of a monopoly. Section 2 will discuss with a recent case of monopoly, as in the web search engine company- Google, whose real repercussion is still not clear to most consumers. Finally this essay will conclude with the outlook on how world markets are opening up to each
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In figure 1, MR is the marginal revenue which is the price of the last unit sold; minus the loss of revenue incurred of those units it could have otherwise sold at a higher price (Sloman, 2005).AR is the average revenue curve. Both the average and the marginal revenue are downwards sloping as in a competitive firm. It should be noted that AR=P, thus price to quantity is same as the average revenue to quantity. MC=AR where the profit is at the maximum, at an output of Qm (Sloman, 2005).The demand curve is the price given.AR=P, the price at Qm.AR-AC is the supernormal profit gained .Point b pertains to average cost (AC) (Sloman, 2005).
1.2 Monopoly against perfect competition
To understand better how the monopoly affects the market, we need to compare monopoly to perfect competition. Where there is perfect competition, the company is unable to decide the price of their product. In other words, the company has to label their prices according to the prices of their competitors. However, in a monopoly, they decide the prices and that too, at a much higher price with a different output compared to a competitive industry (Sloman, 2005).Some key points are given under:
X ¡§Lock-in effect¡¨ arises when consumers are unable to switch to other competing aftermarket products, other than the manufacturer¡¦s aftermarket products, because of the
A monopoly is advantageous to the society and is encourages by the government if there are high fixed costs and very strong economies of scale. At the same time, it could also lead to unequal distribution of wealth; containment of consumer choice; lobbying and unethical spending.
competition, both in attributes and in products. In order to supply an attribute that no
Monopolies are quite dangerous economically, and are usually broken up by the federal government, with only two exceptions- electricity, and gas. These are modern examples. A monopoly is the economic term for when a company that makes a product has no competition, and can raise the prices as high as they want. For example, the most obvious and powerful monopoly of the industrial revolution was the railroad monopoly. They made money quite quickly as a shipping company, and destroyed any and all competition as the only transcontinental railroad at the time. It’s leader, Cornelius Vanderbilt came to be considered one of the most powerful people of all time, due to his control over who he shipped for.
United States vs. Microsoft is one the largest, most controversial antitrust lawsuits in American history. Many claim the government is wrongly punishing Microsoft for being innovative and successful, arguing that Windows dominates the market because of the product’s popularity, not because of malpractice by the parent company. Others argue in favor of the government, claiming that Microsoft’s practices conflict with the free market ideal. There are many arguments for both sides of the lawsuit, but what the case really comes down to is this: does the government have the right to interfere in today’s marketplace? Or is Microsoft violating laws that are rightfully imposed by the government?
In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge high prices.[4] 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).[5]
Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore
Finally, you may be asking “Are oligopolies harmful or beneficial to the consumer?” There are some economists who view oligopolies as negative, stating that they artificially inflate prices and inhibit healthy competition between companies. They claim oligopolies are one step away from monopolies, and that without restriction placed upon their activities, oligopolists will tend toward monopolistic price fixation. However, these statements are normative, and completely unfounded. The fact is that firms do not strive to be monopolies. They prefer some healthy competition. It keeps them current and innovative, and provides the framework for cutting costs, finding more efficient production methods and developing new products. Most importantly, it keeps them out from under government scrutiny, as a monopoly would be. Consumers benefit from this in the form of lower prices and more variety. In fact, as you look at our current economy, you can see these points supported everywhere. First, the competition
Monopolies played a big factor in the 1870’s to 1914. These originally came to the United States with the colonial administration. Monopoly’s refers to a market structure whereby there is only a single firm operating in an economy. Companies though normally characterized by the absence of competition in the market.
A Monopoly refers to a market where-by there is one or limited suppliers of a given commodity to the market.
This paper will discuss the Google case that was presented by Microsoft stating that Google was in violation of antitrust laws. Also, in this paper some of the pecuniary and non-pecuniary costs will be discussed. Given in this paper will also be my thoughts on monopolies and oligopolies.
What is a monopoly? According to Webster's dictionary, a monopoly is "the exclusive control of a commodity or service in a given market.” Such power in the hands of a few is harmful to the public and individuals because it minimizes, if not eliminates normal competition in a given market and creates undesirable price controls. This, in turn, undermines individual enterprise and causes markets to crumble. In this paper, we will present several aspects of monopolies, including unfair competition, price control, and horizontal, vertical, and conglomerate mergers.
1. Analyze the fast food industry from the point of view of perfect competition. Include the concepts of elasticity, utility, costs, and market structure to explain the prices charged by fast food retailers.
Also, they both are equally harmful to free market places causing consumers to pay inflated prices for low quality necessities. The main difference between cartels and monopolies is that have only a single player whom single handedly controls the production of supply, and pricing of a particular product. A cartel is a group of oligopolies that come together as one firm to protect their interests. In a cartel the entire group or cartel members will benefit and in a monopoly only one group benefits. “Cartels break up occasionally because of cheating or lack of effective monitoring, but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions.” (Levenstein) “Monopolies do disappear. Sometimes a monopoly disappears relatively quickly, perhaps in only a few years. Some monopolies do, however, last decades.” (Monopoly) However, in both situations the consumer ends up on the short side of the
The increase of market competition is gradually growing up. However, due to historical reasons the previous administrative system, official standard mechanisms of power began to seek a new variation. Therefore, relying on the existing administrative monopoly power is not a very healthy market mechanism to find new opportunities and operation model (Gottinger, 2013). The combined causes of administrative monopoly include the following main points:
Before we go about using diagrams to explain we must first understand the two abbreviations above. MR means “(Marginal Revenue) is the extra total revenue gained by selling one more unit, per time period” and MC means “(Marginal Cost) this is the extra cost of producing one more per time period” stated in Sloman, Hinde and Garratt (2013, pp.134 and 150). Now that we understand what MR and MC means we move onto profit maximization. It is the main goal of all commercial firms to make profits in addition to that they would want to find out at which point total profit is maximized. The formula to calculate profit is; Total revenue - Total Cost (TR - TC) below is a diagram illustrating this