Monopoly †micro Economics Essay

Monopoly is a market structure in which there is a single seller, there are no close substitutes for the commodity it produces and there are barriers to entry in same industry. Characteristics of Monopoly †¢Single Seller: There is only one seller; he can control either price or supply of his product. But he cannot control demand for the product, as there are many buyers. †¢No close Substitutes: there are any close substitutes for the product. The buyers have no alternatives or choice. Either they have to buy the product or go without it. †¢Price: The monopolist has control over the supply so as to increase the price. Sometimes he may adopt price discrimination. He may fix different prices for different sets of consumers. A monopolist can either fix the price or quantity of output; but he cannot do both, at the same time. †¢No Entry: there is any freedom to other producers to enter the market as the monopolist is enjoying monopoly power. There are strong barriers for new firms to enter. There are legal, technological, economic and natural obstacles, which may block the entry of new producers. †¢Firm and Industry: Under monopoly, there is no difference between a firm and an industry. As there is only one firm, that single firm constitutes the whole industry. Causes for Monopoly †¢Natural: A monopoly may arise on account of some natural causes. Some minerals are available only in certain regions. For example, South Africa has the monopoly of diamonds; nickel in the world is mostly available in Canada and oil in Middle East. This is natural monopoly. †¢Technical: Monopoly power may be enjoyed due to technical reasons. A firm may have control over raw materials, technical knowledge, special know-how, scientific secrets and formula that enable a monopolist to produce a commodity. e. g. , Coco Cola. †¢Legal: Monopoly power is achieved through patent rights, copyright and trade marks by the producers. This is called legal monopoly. †¢Large Amount of Capital: The manufacture of some goods requires a large amount of capital or lumpiness of capital. All firms cannot enter the field because they cannot afford to invest such a large amount of capital. This may give rise to monopoly. For example, iron and steel industry, railways, etc. †¢State: Government will have the sole right of producing and selling some goods. They are State monopolies. For example, we have public utilities like electricity and railways. These public utilities are undertaken by the State. Examples of Monopoly in Market In today’s Market monopoly does not exist today there is cut throat competition in all the fields but still there are few industries which have monopoly those are mentioned below. †¢Indian Railways †¢Airlines in India till liberalization. †¢OPEC ( A Group of Oil producing countries come together to form a organization and rule market) †¢Microsoft (An Information Technology Firm) †¢Monopoly can also exist within Pharmaceutical companies where when one gets patent rights they are the only company producing the medicine and no one else can produce. Here above we saw example of Microsoft. Microsoft is a company that produces Operating System for computers which is the only graphical user interface between machine and human. There are other companies also like MAC. But as per patent they only work for Apple. Where as all other computer manufacturer are left with only option as Microsoft and its product. This is how Microsoft is under Monopolistic Condition and Market circumstances. And above mentioned all the characteristic can also be related to the example of monopoly. Today we have seen that Microsoft is a multi Billion Dollar Multinational company. This has grown over a period of time just because of its monopoly and very less competitors. This tells us the Different ways by which a monopoly power of the company can grow. And company can make very good amount of profits.