![]() These terms are used somewhat differently among authors. ![]() or monopoly power, which means that they can increase their price above marginal cost and sustain sales for a long period of time. However, many firms have market power The ability to increase their price above marginal cost and sustain sales for a long period of time. Microsoft has a great deal of market power, but a small percentage of personal computer users choose Apple or Linux operating systems. post office has a monopoly in first-class mail but faces competition from FedEx and other express-mail companies, as well as from fax and e-mail providers. is a firm that faces a downward sloping demand and has a choice about what price to charge-without fearing of chasing all of its customers away to rivals. This concept can be understood with the help of a demand curve.A monopoly A firm that faces a downward sloping demand and has a choice about what price to charge. Hence, the demand curve of a monopoly firm is downward sloping. Therefore, if the firm wants to increase the number of goods to be sold in the market, it has to reduce the price of the product. However, a monopoly firm cannot control the demand for a product. It gives the monopolist, full freedom and power to fix the price of their product. Demand Curve under MonopolyĪs there is a single seller or firm in the monopoly market selling products with no close substitute, a monopoly firm is like an industry. One of the most famous examples of a cartel in monopoly is OPEC (Organisation of Petroleum Exporting Countries).Ī Cartel is an organisation or a group of producers of goods and suppliers of services formed with a formal agreement among them for the regulation of supply to manipulate or regulate the price of goods or services. ![]() They also agree among themselves to restrict their total output up to the level at which they can maximize their joint profits. Cartel: Some firms use cartels to retain their individuality and coordinate their output and pricing policies so they can act as a monopoly. For example, De Beers control a large percentage of the world’s production of diamonds and can therefore influence the market.Ĥ. Control on Raw Materials: Another reason for the emergence of Monopoly is sole ownership or control of the essential raw materials required in a specific industry. The period for which patent rights are granted to the firms or manufacturers is known as patent life.ģ. A patent right is the right granted by the government to a firm or manufacturer to use or sell their invention for a certain period of time. For the risk, they have taken in R&D, the government as a reward grants them patent rights. Patent Rights: Many big private companies perform Research and Development activities at their own risk and sometimes if the R&D gets successful, they come up with a new product or technology. Therefore, sometimes government does not grant the license to the new firms so they can make sure that only one firm runs in the market.Ģ. Licensing helps a firm in ensuring minimum standards of competency. Government Licensing: Before entering into an industry, a firm has to take permission from the government and obtain a license for the same. Various other reasons for the emergence of Monopoly are as follows:ġ. The basic cause of the existence of monopoly is the barrier of entry into the market. Being a sole seller, the monopolist can influence the supply of goods in the market and can fix the price on their own. Price Maker: As there is only one seller under the monopoly market, and the firm and the industry are the same things, the seller has a complete control over the price of the product. One of the reasons behind the barriers may be legal restrictions, like licensing, patent rights, etc., or it might be due to the restrictions in the form of cartels created by the firms.ĥ. ![]() It means that a monopoly firm can earn abnormal losses and profits in the long run. Restrictions on Entry and Exit: Under a Monopoly market, there are strong restrictions/barriers on the entry of new firms and exit of the existing firms. For example, electricity charges per unit for a commercial purpose is different from the charges per unit for residential purpose.Ĥ. Use Price Discrimination: When the seller charges a different price for the same product based on its uses, it is known as Use Price Discriminations.
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