Skip to main content

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, or is the sole provider of a good or service in an industry. This potentially allows that company to become powerful enough to prevent competitors from entering the marketplace, leading to Limited Consumer Choice, Higher Prices and Limited Response to Customer Concerns.
Many times when a Government determines that an unfair monopoly is in place, it can step in enforce Anti-Trust laws, which can penalise companies monetarily or even force the break up of the company.
Monopolies can form for a variety of reasons, as following
If a firm has exclusive ownership of a scarce resource.
Governments may grant a firm monopoly status for some period of time. The reasoning behind such Monopolies is to give innovators some time to recoup, what are often large Research & Development costs.
Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names giving them exclusive rights to sell the good or service.
Monopolies are thus characterised by a Lack of Economic Competition to produce goods or service, a Lack of Viable Substitute Goods, and the possibility of High Monopoly Price well above the firm's marginal cost that leads to High Monopoly Profit.

Key Characteristics of Monopoly Market Structure


Lack of Competition

A Monopoly is a single seller of a good or service for which substitutes are not readily available. Hence it faces little or no competition in it's industry.

Monopoly Firm as the Price Maker

As the Monopoly firm has full control of the market, it is able to set the price and supply and the terms of exchange of it's goods independently without any interference. This characteristics makes it Price Maker.

Profit Maximizer

A Monopoly has full control both over the quantity produced and the price charged, hence it acts as a Profit Maximizer and is able to change the supply and price of a good or service to generate profits. It can find the level of output that maximises it's profit by determining the point at which it's marginal revenue equals to it's marginal cost.

Super Normal Profits in the Long Run

Monopolies can make Super Normal Profits in the long run. In general, the level of profits depends upon the degree of competition in the market, which for a pure Monopoly is zero. With no close substitutes, the Monopoly can derive Super Normal Profits.

High Barriers to Entry & Exit

Legal rights, Intellectual property rights, patents and copyrights give Monopolies exclusive control of the production and selling of certain goods.

Popular posts from this blog

The Intuitive Lowest Cost Method

The Intuitive Lowest Cost Method Or The Minimum Cell Cost Method

The Intuitive Lowest Cost Method is a cost based approach to finding an initial solution to a transportation problem.
It makes allocations starting with the lowest shipping costs and moving in ascending order to satisfy the demands and supplies of all sources and destinations.

This straightforward approach uses the following steps.
Identify the cell with the lowest cost.Allocate as many units as possible to that cell without exceeding the supply or demand.Then cross out the row or column or both that is exhausted by the above assignment.Move on to the next lowest cost cell and allocate the remaining units.Repeat the above steps as long as all the demands and supplies are not satisfied. 
When we use the Intuitive Approach to the Bengal Plumbing problem, we obtain the solution as below.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A Rs.50
Rs.40 100 Rs.30 100 Plant…

Vogel's Approximation Method (VAM)

The Vogel's Approximation Method

In addition to the North West Corner and Intuitive Lowest Cost Methods for setting an initial solution to transportation problems, we can use another important technique - Vogel's Approximation Method (VAM).
Though VAM is not quite as simple as Northwest Corner approach, but it facilitates a very good initial solution, one that is often the optimal solution.
Vogel's Approximation Method tackles the problem of finding a good initial solution by taking into account the costs associated with each alternative route, which is something that Northwest Corner Rule did not do.

To apply VAM, we must first compute for each row and column the penalty faced if the second best route is selected instead of the least cost route.

To illustrate the same, we will look at the Bengal Plumbing transportation problem.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A
Rs.50
Rs.40
Rs.30 100 Plant B
Rs.80
Rs.

Market

A market in any one of a variety of different systems, institutions, procedures, social relations or infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Markets vary in size, range, geographical scale, locations, types and varieties of human communities, as well as in the types of goods and services traded. Some Examples include, local farmer's market held in town squares, Shopping Centres or shopping malls, Financial Markets such as International currencies or commodity markets or Equity stock markets, legally centred markets such as pollution permits, and illegal markets such as black markets for illicit drugs or weapons. In mainstream economics, the concept of market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is called a transaction. Thus a market ha…