Characteristics of Monopoly
Monopoly refers to there is no competition and therefore the supplier has a very high degree of pricing power. In addition, monopoly also is a situation in which a single organization or group owns all or nearly all of the market for a given type of product or service. Besides, it also contains several characteristic, example and diagram in monopoly market.
In addition, there are four common types in competition free market which is perfect competition, monopolistic competition, oligopoly and monopoly. There are different meaning, features and examples in these four common types in a market.
2.0 Monopoly
A monopoly is when there are many buyers but there is only one seller that controls the supply of a product and its price. This allows the supplier to charge higher prices than if there was competition. Burkett, John P. (n.d, pg345) states that if a product has no close substitutes and a single seller, economists say that its market is a monopoly and its seller is a monopolist. Monopoly is like a market structure in which one company sells a special goods into which entry is blocked in which the single company has considerable control over the product price. So, consumers have no choice to buy their product and service. There is few government agencies keep the formation of monopoly under control, especially in markets such as cable companies like Tenaga National and media.
2.1Characteristics of Monopoly
Monopoly market structure is selling the product which has no close substitutes with others. The characteristics of a monopoly market are as follow:
2.1.1Single Seller
There is only one seller in a monopoly market. The seller controls the supply of a product and decides the product price. Besides, a monopolistic also control over the entire market because there is a single particular services in the market obtain a lot of purchasers
2.1.2 Unique Product without close substitutes
In a monopoly market, their product and service are special and unique. They have their own idea and design for the product and service. All the units of a product are similar and there are no alternative to that commodity in the firm. The firm are controlling over the market by offering a product that is not same with other. The firm may use specialized information like trademark and copyright in order to establish legal authority over the production of some goods and services.
2.1.3 Barriers to Entry
Normally, monopoly situation in a market can continue only when other company does not enter into the industry. In a monopoly market, they have no others competitor because barriers of enter are very strong. It would be prevent and discourage to enter this market to be a competitor. Therefore, a monopoly presents barriers to prevent potential competitors from entering the market. The barriers may even be legal in that the firm to take benefit of copyrights, tariffs and trade restrictions and others. If want continue the monopoly market should not be no entry for new firms.
2.1.4 Profit in the Long Run
The seller can earn more profit as he can if there is no any fear of competitive seller in the monopoly market. In other hand, if the seller gets unusual profits in the long term, he cannot be simply quit from this market. However, this is impossible under perfect competition. If unusual profits are available to a competitive company, other companies will enter the competition with the result unusual gains will be eliminated.
2.1.5 Lack of Competition
When the market need to serve like a monopoly, the lack of business competition are the best benefit for the monopolistic. They also need to barriers to entry for ensure other firms not easily come in the market running their business. For example, cable companies are the monopoly in market. They control all the supply of the product and a lot of buyers.
2.2 Diagram of Monopoly
Since there is only one producer in monopoly, the company’s demand curve represents the industry demand curve. The demand curve for a monopoly firm is downward sloping, which shows the average revenue or price for every unit of output sold. Marginal revenue is additional in total revenue from selling one more unit. Total revenue is the prices multiply with quantities. The graph shows a linear demand curve and MR curve.
For example, if the quantity ranges from 0 to 5 units of cable TV, the MR is positive (MR>0) and demand is elastic where price decrease will increase the TR. At the quantity of 5 units of cable TV would lead to negative MR (MR<0) and this range the demand is inelastic because drop in price would decrease the TR. TR is maximized when MR is zero.
2.3 Conclusion of Monopoly
In conclusion, monopoly is only a seller but many buyers in a market. A monopolist is selling unique product and the design and idea create by his own. The seller is ‘price maker’, he decided to set the product price and maximize the profit. Therefore, monopoly is an absence of competition, which often results in high prices. Besides, a monopolistic also needs to control some company no entry in monopoly market because some firms are strong to take advantages in your company.
3.0 Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly
Perfect competition means that has a market situation in which a lot of sellers or producers producing and selling homogeneous product. Monopolistic competition is which there are many firms selling differentiate products in a market. In addition, oligopoly is market structure in which there are a few independent companies and monopoly is the only one seller in the market and control the entire market.
3.1 Difference between the Features of Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly
Characteristics
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Number of sellers
Large
Many
Few
One
Difference between products
Homogeneous
Differentiated
Undifferentiated or Differentiated
Unique
Freedom of entry
Unrestricted
Unrestricted
Restricted
Restricted or completely blocked
Ability to set price
None
Some
Some
Considerable
Example
Agriculture
Fast Food Burger Companies
Soft Drink Companies
Tenaga Nasional
3.1.1 Number of sellers
Perfect competition refers to exists when there are a lot of sellers in a market and do not have large seller to determine the product price and monopolistic competition is when a major number of sellers produce goods that are very similar but are perceived by purchaser are different. In an oligopoly market, there have at least two and more firms controlling the market while monopoly means that there are many buyers but only one seller controls the supply of a products and its price. The best example of perfect competition is farming and fast food burger companies like MCD are the example of monopolistic competition. Also, example of oligopoly is coke which has many types like Coca Cola, Pepsi and Cola Turka while the example of monopoly is Microsoft.
3.1.2 Difference between products
This is homogeneous product in perfect competition. The products offered for sale are perfect substitutes of one another and also must identical in every respect to all sellers. Under monopolistic competition, product differentiation allows firms to charge a high price and collect some profits. In oligopoly that are provided homogeneous or differentiated products while monopoly market are no close substitutes, because the monopolistic create and design the product by their own. For instance, farming such as organic vegetables and some tropical fruits are the example of perfect competition and KFC and Burger King are the example of monopolistic competition. Also, automobiles, banking and petroleum are the example of oligopoly. Cable companies such as media and electricity like Tenaga Nasional or Pos Laju are the example of monopoly.
3.1.3 Freedom of entry
Generally, there is free entry and exit in perfect competition and monopolistic competition. If have any barriers to entry for new firms and prices are decided by supply and needs. Companies in an oligopolistic market obtain and retain market control through barriers to entry. The noted of entry barriers are exclusive resource ownership, other government restrictions, high start-up cost and copyrights. Besides, monopoly is not allow other firms to entry and run their business in the market. For example, if a firm wants to sell tropical fruit in this land, it must have resources, labor and money to run the business. If the business was earned less profit, the seller can exit the market without any restrictions. The example of monopolistic competition is if a company wants to entry aluminum industry, the firm must find different quality, brand name and design of the aluminum to run the business in this market.
3.1.4 Ability to set price
Perfect competition is not able to set price because the price is depending on the market price. Therefore, supplier and buyer are not allowed to change the price. For example, the price of the mineral water is set by supply and demand is $1 per bottle. So, all sellers and buyers already know the product price and cannot change it. In addition, under monopolistic competition, sellers can change the price if they want. This is because there are similar product but different brands name, quality and design of the product. Therefore, seller can change the price of the product without influence the entire market. For example, chicken rice in normal restaurant is only sell $3.50 per plate but in Chicken Rice Shop Restaurant is selling $8.90 per plate. This is the different between the quality and design of the product. Under oligopoly, it is a market most depend on strategic. When one seller lowers the price of the product, another business of oligopoly also will follow to lower the price of the product. However, because there are rival firms, oligopolies must attention at how they react to its change in price, output, product or advertising. For example, if F&N Soft Drink Company increases the price of the soft drinks, other soft drink companies will also follow to increase the price. Also, monopoly able to set the price of the product because monopolistic is a price-maker. This is because there is only one seller in the market and decides the price of the product. Therefore, consumers have no choice and need to use their product and service. For instance, Telekom Malaysia Bhd â„¢ is increase the talking time of home telephone to home telephone to RM0.50 sen per minute, so all users need to accept and follow the price by government because monopolistic is price maker.
3.2 Conclusion of Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly
In conclusion, there are difference feature in these four common types of market structure which is perfect competition, monopolistic competition, oligopoly and monopoly. In perfect competition, there are many buyers but only one seller in the market while under monopolistic market, there are also many sellers in the market. In addition, in oligopoly there are only several sellers in the market and monopoly only one seller control the entire market.
4.0 Conclusions and Recommendations
In conclusion, after complete these two tasks, I gained extra knowledge about the detail of monopoly and it’s characteristic. In a monopoly market only has one seller running the business in entire market. Therefore, there is no competition with others. A monopolistic also needs to ensure no barriers to entry of other companies.
In addition, free market structure is the competition that comes from allowing anyone who needs to sell a particular service or item to do so. Under market structure there have four common types which are perfect competition, monopolistic competition, oligopoly and monopoly. There are different market with different characteristics and examples.
5.0 References
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