The Four Characteristic Of Monopoly
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Published: Tue, 25 Apr 2017
Monopoly is a single company or industry to produce unique goods or service and there are without substitutes. Besides that, monopoly has few characteristic in this market which is single seller and many purchasers, its produce unique goods and there have strong barriers to entry this market.
Furthermore, there have four types of competition in this market which is perfect competition, monopolistic competition, oligopoly and monopoly. From this four type market, they have their own definition and characteristic.
2.0 Introduction of question 1
In economic, monopoly is a situation in which an only one company or industry owns all in the market for produce and given a particular goods or service. A monopoly tends to have specific information, such as patents or copyrights, which are not allowed to other potential producers. Monopoly has no competition in the market and it has unique goods and services to control the manufacturer or supplier in market and produces of goods or service, it can be affect the prices quantity of produce fundamental changes. In monopoly, a supplier and manufactures are control supply and needs, degree of price and supply control imposed by the industry or companies is greeter. Therefore, consumer does not have choice to select cheaper product or service.
Example of monopoly market is, a company like a Microsoft owning by Windows is also belonging to monopoly. Most of the peoples are using Microsoft to do their task. Monopoly of the company own by government is Post Office and Tenaga Nasional.
2.1 Answer of question 1
2.1.1 Four Characteristic of monopoly
Monopoly market is single seller and a lot of purchasers. Companies can freely to control the prices. Consumers have no choice to choose other alternative. The characteristic of monopoly market are:
1. Single seller and a lot of purchasers:
Monopoly is a form of not perfect market structure because the produce the goods and give the services is by one single seller or monopolist. A price of goods and service is also fully control by one seller. Therefore, if the prices of the goods rise up, consumers need to accept and pay higher prices to buy the goods and service because the monopoly market are fully control and produce the goods and service by one single monopolist. So, consumers do not have choice to choose goods from other company or industries. Monopolist can maximize the profit in the long run.
2. Unique goods
Monopoly market producing unique goods, there does not have close substitutes in the market place. Monopoly market is freedom to change the cost of the goods or services. Example of Windows company, they are using their own idea to form their own goods and service, which is Microsoft. There do not have any other substitutes in this market.
3. High barriers to entry into monopoly market
A monopoly in the market is a strong barrier to enter the new or others industry. Monopoly does not face competition because do not have other competitor produce same product to enter the market. It is limit on others new industry and hard to enter in this monopoly market. Means other industries or company cannot easily to enter the market and given goods. Monopoly control over the production and sale of the goods to implement certain economic barriers are imposed to entry potential adversaries. A monopoly market needs a large start up costs to enter a monopoly market.
4. Specialized Information about production techniques
Monopoly is a common feature by control of production or information is not available given to others. Producer usually have specialized information such as patents, copyright over idea and trademark establish by law to sell the services or goods. The monopoly of resources or technique is only the company or industry can exploit it.
2.1.2 Example of monopoly
One of the best example of monopoly market is Microsoft office that owned by Windows company. There have no other competitors and a lot of people are using this Microsoft Word to do their job and get the job done easily. A Microsoft Office is unique goods of the words, it done have others alternative from others company or industry.
2.2 Diagram of monopoly
A Monopolist is a price maker because does not face any competitors. Therefore demand is price inelastic.
A monopolist will seek to maximize profits by setting output where MR = MC
This will be at output Qm and Price Pm.
If the market was competitive the price would be lower and output higher.
2.3 Conclusion of question 1
In a conclusion, the characteristic of monopoly market is only one seller or producer to fully control the market. They are using their own idea to form and produce the goods and service. Monopoly does not have any competitors in the market. Therefore, there can freely to control the market price and quantity of goods produce.
3.0 Answer of Question 2
3.1 Difference between the features of Perfect competition, Monopolistic competition, Oligopoly and Monopoly
3.1.1 Perfect competition
Perfect competition in market no participant can impact the price. Their characteristics are freedom flow of information and leave or enter the market, no entry barriers for new industry, which means, there is no need for government regulation, as well as a lot of purchasers and sellers. Industry produce goods are consistent, there is no brand. In the long term, company only can make a normal profit but they cannot gain abnormal profits in the short term. A recent article (Charlie, et al., 2011) states that industrialization of agriculture is one of the goods reflects perfect competition in the real life. Perfect competition is faces a horizontal demand curve.
3.1.2 Monopolistic competition
Monopolistic competition is in a market have many manufactures to produce similar goods, but have a little bit different products. There is no perfect alternative for the goods in market. Every manufacture can set the prices and quantity does not influence the marketplace. In a monopolistic competition is different from perfect competition in a production do not need at the low costs. Therefore, businesses remain overcapacity. It is one form of imperfect competition.
The features of monopolistic competition have many of industry to satisfy the market need for the goods. The prices of goods cannot be too much different from others because industries that under monopolistic competition are produce a differentiated goods which is close to alternative. A monopolistic competition is low barriers to entry which means new company can freely enter or exit the market. They earn normal profits in the market for a long term. Furthermore, company under monopolistic competition need to have some promotion or advertisement to attract and increase the sales. In addition, close alternative prices of goods are low; it will attract some consumers to buy their goods. It means prices of quantities fall demand will increases.
In a monopolistic competition, for example, in Malaysia there have a lot of producers produce different brand of shampoo which Sunsilk, Follow me, Pantene and Schwarzkopf to satisfy market needs and consumers have freedom to choose an alternative. At the same times the Sunsilk might be faces competition from others producers of shampoo. If the prices of Follow me are low, it might be attract consumers to buy it. Thus, monopolistic competition is the real market structure.
Oligopoly is the market primarily by several suppliers or few companies in the industry. An oligopoly is a small group of business to control the market for a certain goods and service. Oligopoly enterprise is major relative to other market in which it operates. Therefore, the business is major impact over prices of the market. In addition, in oligopoly, the company is known as price seekers. Oligopoly market is including automobile industry, soft drinks industry, airline industry and photographic equipment industry.
The features of oligopoly market are highly centralized in competition and provide a same or similar goods and service. An oligopoly also has strong barriers to entry like monopoly.
An oligopolistic company changes the marketing strategy or price; it will significantly affect the opponent company. For example the soft drinks company between 100 plus and Revive, if 100 Plus reduce the prices of 50 cents per pack, so that Revive will be influence by 100 Plus. If Revive do not respond, it will lose major market share. Besides that, 100 Plus will get a major market share. Therefore the price of Revive will most likely reduce. Furthermore, in the oligopoly market, barriers to entry new companies are difficult. Barriers to entry might be structural such as limited government issues license.
The definition of monopoly is means one seller or one company to makes up the whole market. There is no competitors and no others seller can affect the prices of monopolist because only one single seller in this market. A monopoly market has a strong barrier to entry into this market. A Microsoft office is the one example of monopoly market.
3.2 Conclusion of question 2
In the conclusion, perfect competitions in the market have a major number of purchaser and seller. Monopolistic competitions in the market have a lot of manufacture to produce similar goods and satisfy the market needs. Oligopoly market is a few purchaser and seller. Company under oligopoly will influence others company or industry. Monopoly market only one company or industry control and sell the goods to the market. Consumers have no choice to choose other alternative.
4.0 Conclusion and Recommendations
From this microeconomic assignment, I understand market structure which has monopoly, perfect competition, monopolistic competition and oligopoly and their characteristics.
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