Economics
Monopoly
A monopoly is a market structure in which a single seller controls the supply of a good or service, giving them significant market power. This can lead to higher prices, reduced consumer choice, and potential inefficiencies. Monopolies can arise from barriers to entry, such as control over essential resources or government regulations, and are often subject to antitrust regulations to prevent abuse of power.
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10 Key excerpts on "Monopoly"
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
A Monopoly is a market structure in which a single supplier produces and sells the product. If there is a single seller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a pure Monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced, but nevertheless firms retain some market power. This is called monopolistic competition, whereas in oligopoly the main theoretical framework revolves around firm's strategic interactions. In general, the main results from this theory compare price-fixing methods across market structures, analyse the impact of a certain structure on welfare, and play with different variations of technological/demand assumptions in order to assess its consequences on the abstract model of society. Most economic textbooks follow the practice of carefully explaining the perfect competition model, only because of its usefulness to understand departures from it (the so called imperfect competition models). The boundaries of what constitutes a market and what doesn't is a relevant distinction to make in economic analysis. In a general equilibrium context, a good is a specific concept entangling geographical and time-related characteristics ( grapes sold in October 2009 in Moscow is a different good from grapes sold in October 2009 in New York ). Most studies of market structure relax a little their definition of a good, allowing for more flexibility at the identification of substitute-goods. Therefore, one can find an economic analysis of the market of grapes in Russia , for example, which is not a market in the strict sense of general equilibrium theory. Characteristics • Single seller: In a Monopoly there is one seller of the good who produces all the output. Therefore, the whole market is being served by a single firm, and for practical purposes, the firm is the same as the industry.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Learning Press(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 7 Monopoly In economics, a Monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific individual or an enterprise is the only supplier of a particular kind of product or service. (This is in contrast to a monopsony which relates to a single entity's control over a market to purchase a good or service, and contrasted with oligopoly where a few entities exert considerable influence over an industry) Monopolies are thus characterised by a lack of economic competition to produce the good or service and a lack of viable substitute goods. The verb monopolise refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. A Monopoly must be distinguished from monopsony, 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 where one or a few of the entities have market power and therefore must interact with their customers (Monopoly), suppliers (monopsony) and the other firms (oligopoly) in a game theoretic manner - meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. When not legally coerced to do otherwise, monopolies typically produce fewer goods and sell them at higher prices than under perfect competition to maximize their profit at the expense of consumer satisfaction. Sometimes governments legally decide that a given company is a Monopoly that doesn't serve the best interests of the market and/or consumers.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
In the case of Monopoly, one firm produces all of the output in a market. Since a Monopoly faces no significant competition, it can charge any price it wishes, subject to the demand curve. While a Monopoly, by definition, refers to a single firm, in practice people often use the term to describe a market in which one firm merely has a very high market share. This tends to be the definition that the U.S. Department of Justice uses. Even though there are very few true monopolies in existence, we do deal with some of those few every day, often without realizing it: The U.S. Postal Service, your electric, and garbage collection companies are a few examples. Some new drugs are produced by only one pharmaceutical firm—and no close substitutes for that drug may exist. From the mid-1990s until 2004, the U.S. Department of Justice prosecuted the Microsoft Corporation for including Internet Explorer as the default web browser with its operating system. The Justice Department’s argument was that, since Microsoft possessed an extremely high market share in the industry for operating systems, the inclusion of a free web browser constituted unfair competition to other browsers, such as Netscape Navigator. Since nearly everyone was using Windows, including Internet Explorer eliminated the incentive for consumers to explore other browsers and made it impossible for competitors to gain a foothold in the market. In 2013, the Windows system ran on more than 90% of the most commonly sold personal computers. In 2015, a U.S. federal court tossed out antitrust charges that Google had an agreement with mobile device makers to set Google as the default search engine. This chapter begins by describing how monopolies are protected from competition, including laws that prohibit competition, technological advantages, and certain configurations of demand and supply. It then discusses how a Monopoly will choose its profit-maximizing quantity to produce and what price to charge.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
In the case of Monopoly, one firm produces all of the output in a market. Since a Monopoly faces no significant competition, it can charge any price it wishes. While a Monopoly, by definition, refers to a single firm, in practice the term is often used to describe a market in which one firm merely has a very high market share. This tends to be the definition that the U.S. Department of Justice uses. Even though there are very few true monopolies in existence, we do deal with some of those few every day, often without realizing it: The U.S. Postal Service, your electric and garbage collection companies are a few examples. Some new drugs are produced by only one pharmaceutical firm—and no close substitutes for that drug may exist. From the mid-1990s until 2004, the U.S. Department of Justice prosecuted the Microsoft Corporation for including Internet Explorer as the default web browser with its operating system. The Justice Department’s argument was that, since Microsoft possessed an extremely high market share in the industry for operating systems, the inclusion of a free web browser constituted unfair competition to other browsers, such as Netscape Navigator. Since nearly everyone was using Windows, including Internet Explorer eliminated the incentive for consumers to explore other browsers and made it impossible for competitors to gain a foothold in the market. In 2013, the Windows system ran on more than 90% of the most commonly sold personal computers. In 2015, a U.S. federal court tossed out antitrust charges that Google had an agreement with mobile device makers to set Google as the default search engine. This chapter begins by describing how monopolies are protected from competition, including laws that prohibit competition, technological advantages, and certain configurations of demand and supply. It then discusses how a Monopoly will choose its profit-maximizing quantity to produce and what price to charge.
- Michal S. Gal, Michal S. GAL(Authors)
- 2009(Publication Date)
- Harvard University Press(Publisher)
The decisive factor is the existence of a power to raise prices above the competitive level for a significant pe-riod of time. There is no single correct formulation of market domi-nance. Nonetheless, the foregoing analysis points to differences be-tween large and small economies. In a small economy, lower market shares can imply stronger market power than in a large economy, all else being equal. Also, in a small economy, current market shares are a better indicator of the market power of a firm than in a large one. Regulation of Mere Monopoly Continued dominance of an industry by a single firm that has ob-tained and maintained its Monopoly position by lawful means (“mere Monopoly”) has long posed difficult questions for competition law. Single-firm dominance, whatever its origin, commonly results in eco-nomic as well as non-economic costs. These costs do not necessarily flow from or may not be accompanied by exclusionary or predatory conduct and thus cannot be reached by conventional conduct-based regulation. Rather, the monopolist’s decisions that lack an anti-com-petitive element are in essence identical to those of firms operating in a competitive industry. For example, all firms set price and output at their profit-maximizing level. In a Monopoly market these prices are above marginal cost. But such Monopoly pricing is simply a rational exploitation of the profit potential of the current market structure, obtained and maintained lawfully. Accordingly, one of the most important debates regarding monopo-lized markets involves the regulation of mere Monopoly per se, that is, without need of proof of anti-competitive conduct or intent. In-stead, the law is triggered by predetermined market structure fac-68 • Competition Policy for Small Market Economies tors, such as the size of the dominant firm or its performance vari-ables.
eBook - PDFEconomics
Principles & Policy
- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
Monopoly, according to this view, may be the handmaiden of innovation. Although the argument is an old one, it remains controversial; while a monopolist may be in a better position to innovate, it may have less incentive to do so, as it earns comfortable profits sim- ply by virtue of its position and barriers to entry. The statistical evidence is decidedly mixed. 12-3b Natural Monopoly: Where Single-Firm Production Is Cheapest Second, we must remember that the Monopoly depicted in Figures 2 and 3 is not a natural Monopoly, because its average costs increase rather than decrease when its output expands. However, some of the monopolies you find in the real world are “natural” ones. Where a Monopoly is natural, costs of production would, by definition, be higher—possibly much higher—if the single large firm were broken up into many smaller firms. (Refer back to Figure 1.) In such cases, it may serve society’s interests to allow the Monopoly to continue because con- sumers benefit from the economies of large-scale production. But then it may be appropriate to regulate the Monopoly by placing legal limitations on its ability to set its prices. 12-4 PRICE DISCRIMINATION UNDER Monopoly So far, we have assumed that a Monopoly charges the same price to all of its customers, but that is not always true. In reality, Monopoly firms can sell the same product to different customers at different prices, even if that price difference is unrelated to any special costs that affect some customers but not others. Such a practice is called price discrimination. Pricing is also said to be discriminatory if it costs more to supply a good to Customer A than to Customer B, but A and B are nonetheless charged the same price. We are all familiar with cases of price discrimination. For example, suppose that Erik and Emily both mail letters from Lewisburg, Pennsylvania, but his goes to New York while hers goes to Hawaii.
- J.R. Clark(Author)
- 2014(Publication Date)
- Academic Press(Publisher)
Economics has been defined as the science of distributing limited means among unlimited and competing ends. On 12 April, with the arrival of elements of the 30th U.S. Infantry Division, the ushering in of an age of plenty demonstrated the hypothesis that with infinite means economic organ-ization and activity would be redundant, as every want could be satisfied without effort. Competition and Monopoly By Clair Wilcox [Abridged from Competition and Monopoly in American Industry, Monograph No. 21, Temporary National Economic Committee, Investigation of Concentration of Economic Power, 76th Congress, 3rd Session (Washington, D.C.: United States Gov-ernment Printing Office, 1940), pp. 11-18.] Terminology At the one extreme of possible market situations stands perfect competition, a condition which is non-existent. At the other stands absolute Monopoly power, a condition which is likewise nonexistent. If the use of the term competition is confined to those situations which fulfill the requirements of perfec-tion and if all those which fall short of this ideal are regarded as monopolistic, then all markets are mo-nopolistic. If, on the other hand, the use of the term Monopoly is confined to situations in which monop-oly power is absolute and if all others are regarded as competitive, then all markets are competitive. If both terms are defined in their strictest possible sense, then no actual market can be described as either competitive or monopolistic. In none of these cases would it be possible to use the terms compe-tition or Monopoly to distinguish among actual mar-ket situations, which range all the way from those that approach perfect competition on the one hand to those that approach absolute Monopoly power on the other. If they are to be practically useful, the terms must be employed in a looser sense.
eBook - PDF- Steven Landsburg(Author)
- 2013(Publication Date)
- Cengage Learning EMEA(Publisher)
C H A P T E R 10 Monopoly I s Microsoft a Monopoly? Let ’ s start by asking what the word means. Etymology suggests (and popular usage affirms) that a “ Monopoly ” is a single seller , the only firm in its industry. Well then, is Microsoft a single seller? Obviously, Microsoft is the only firm that sells Windows. Equally obviously, Microsoft is not the only firm that sells operating systems. So whether Microsoft is a single seller depends on how narrowly you define the market. Is Coca-Cola a single seller? It ’ s the only firm that sells Coke but it ’ s not the only firm that sells cola drinks. You might answer the “ single seller ” question one way if you think that Coke and Pepsi are basically identical, and quite another way if you ’ re convinced you can always tell the difference. We would prefer to avoid having to make such difficult judgments, so we ’ ll use a different definition. We ’ ll say that a firm has Monopoly power (or market power ) if it faces a downward-sloping demand curve for its product; in other words, a firm has Monopoly power if it is not perfectly competitive. We will use the word Monopoly informally to refer to any firm with market power. Single sellers are therefore a good example to keep in mind, but not the only examples. By that definition, Microsoft is surely a Monopoly; the demand curve for Windows slopes downward. In other words, if Microsoft wants to increase the sales of Windows, it has to lower the price. Everyone who ’ s willing to buy Windows at the current price has already bought it. Your neighborhood convenience store probably also has some degree of Monopoly power: to draw more customers, it must lower its prices. This contrasts with the competitive wheat farmer who can triple his output and still sell it all at the going market price. How do monopolies behave, and is Monopoly power ever a good thing? Those are the questions we address in this chapter.
eBook - PDFEconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Some firms may enjoy Monopoly power in the short run, but the lure of economic profit encourages rivals to hurdle seemingly high entry barriers in the long run. Changing technology also works against Monopoly in the long run. For example, the railroad Monopoly was erased by the interstate highway system. AT&T’s Monopoly on long-distance phone service crumbled as wireless technology replaced copper wire. The U.S. Postal Service’s Monopoly on first-class mail is being eroded by text messag- ing, emailing, online banking, e-commerce, social networking outlets such as Twitter, Facebook, Instagram, and Tumblr, and by private firms offering overnight delivery. To attract more business, the U.S. Postal Service has lowered rates for Internet sellers, such as Amazon.com, and offers these sellers Sunday delivery. 10 De Beers has lost its grip on the diamond market. And cable TV is losing its local Monopoly to technological breakthroughs in fiber-optics technology, wireless broadband, and Internet streaming. Although perfect competition and pure Monopoly are rare, our examination of them yields a framework to help understand market structures that lie between the two extremes. Many firms have some degree of Monopoly power—that is, they face downward-sloping demand curves. The next chapter discusses the two market struc- tures that lie in the gray region between perfect competition and Monopoly. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
eBook - PDFMicroeconomics for MBAs
The Economic Way of Thinking for Managers
- Richard B. McKenzie, Dwight R. Lee(Authors)
- 2016(Publication Date)
- Cambridge University Press(Publisher)
In other words, firms in decreasing-cost industries tend naturally toward only one producer remaining viable in the market. A natural Monopoly is a market structure characterized by a decline in the long-run average cost of production within the range of the market demand, which means that the market will be served most cost-effectively with only one producer. Firm strategy under imperfectly competitive market conditions 519 A Although a firm with decreasing costs can expand until it is the major if not only producer, it will not necessarily be able to price like a Monopoly. Suppose a “natural Monopoly” flexes its market muscle and charges P m for Q m units. Another firm, seeing the first firm’s economic profits, may enter the industry, expand production, and charge a lower price, luring away customers. To protect its interests, the firm that has been behaving like a Monopoly will have to cut its price and expand production to lower its costs. It is difficult to say how far the price will fall and output will rise, but only one firm is likely to survive such a battle, selling to the entire market at a price that compet-itors cannot undercut. That price will be approximately P 1 in Figure 12.7 . If the price does fall to P 1 and only one firm survives, its total revenue will be its price times the quantity produced, Q 1 (or P 1 × Q 1 ). Notice that at that level, the firm’s average cost is equal to P 1 ; therefore, the total cost of production (the average cost times the quantity sold) is equal to the firm’s revenue. The firm is just covering its cost of produc-tion, including the owners’ risk cost. Now alone in the market, the firm may think it can restrict output, raise its price, and reap an economic profit. Still, it faces the ever-present threat of some other company entering the market and underpricing its product.
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