Pages 4 (978 words)
Today, many firms are enjoying a monopoly of their products/services in the market.
Monopoly may be defined as the complete control over a commodity enjoyed by a particular company in the market. There will be only a solo manufacturer or provider of the commodity and customers have to depend on them whenever there is a demand since there are no substitutes available. As a result, such a manufacturer can have an absolute control over the price as well as quantity available in the market.
Another benefit enjoyed by the monopolies are that they do not face any risk of an opponent entering the market. In order to establish complete monopoly, usually companies take care of the following things:
- They acquire the complete control over the key raw materials required for manufacturing the product.
- They may acquire a patent in order to be the solo manufacturers or providers of the product or service.
- They acquire the technical and productive efficiency to meet the market demand for their commodity.
Usually a commodity produced by the monopolies will be manufactured in fewer quantities only and their cost may be higher. Since there is no market competition, the advantages are mostly enjoyed by the manufacturers. Little are the benefits obtained by the consumers, since they have no choice when a demand arises.
FEATURES OF MONOPOLY
The following are the main features of a monopoly market:
- In a monopoly, there is a solo manufacturer or provider of a commodity. So all the demands in the market are to be met by this single vendor.
- Highest benefits are enjoyed by the solo manufacturer.
- The price, quantity as well as the quality of the commodity is the absolute decision of the manufacturer. Normally, commodities available in a monopoly market will have a higher price.
- There is no competition or substitutes in a monopoly market.
Even if a competitor wants to enter a market, it is a very difficult task.
TYPES OF MONOPOLY
There are various types of monopoly prevailing in the market. Various classifications have been made based on different criteria.
This section checks in detail the classifications:
- Based on ownership a. Public Monopoly: In a public monopoly, the product/service is provided and controlled by the Government of the country. Unlike other monopolies, public monopoly does not depend upon maximizing profit theory. Rather it is concentrated on the benefits of the people. For example, the Oil Industry in Abudhabi is the monopoly of ADNOC. There are no competitors to ADNOC and still gasoline is provided to the residents at a reasonable price. b.Private Monopoly: In strong contrast to public monopoly, in the case of private monopoly, the product/service is provided and controlled by private firm or an individual. Their main concentration will be on maximizing the profit and hence such commodities will have a higher price. For example, the diamond manufacturers De Beers enjoyed a complete monopoly over the market for about 100 years. In a drive to achieve maximum profits, they created a false impression that the diamond supply was becoming limited and hence increased the rates which mounted up their profits.
- Based on the price a. Simple Monopoly: In the case of simple monopoly, the price of a product/commodity is the same regardless of the customers. Usually it has control in a particular market only. For example, the water supply in Abu-Dhabi is taken care of by ADWEA. The price charged is the same across the emirate indicating a simple monopoly. b. Discriminating Monopoly: In the case of a discriminating monopoly, the price is discriminated according to the customers. Such a commodity will have different prices in different regions. Normally, such a firm has control in various markets.For example, the cost of Mercedes Benz car is different in different countries of the world. In Germany, where it is manufactured, it is usually sold at a relatively lower price. In UAE, the price is higher than that in Germany. In India, the price is higher than that in UAE.
- Based on competition level a. Perfect Monopoly: In perfect monopoly, there is absolutely no threat from any competitors. Such firms enjoy complete control without the fear of any competitor entering the market. This is the most ideal case and is difficult to be established in realty. b.Imperfect Monopoly: In imperfect monopoly, there is no competitor in appearance. But the company may be in the fear of an opponent entering the market in the near future. As the name indicates, the seller do not enjoy the complete features of an ideal monopoly because there is a threat of competition. For example, until recently Etisalat enjoyed the monopoly of telecommunications and internet services in the UAE. But with the entry of du, Etisalat is facing an imperfect monopoly as du is widening its service to all the realms of Etisalat.
- Based on how the monopoly is achieved.a. Legal Monopoly: Legal monopoly is usually the monopoly acquired by a firm by legal procedures with the sanction from the Government. Copyrights, trademarks, patents etc are legal tools for obtaining monopoly over a product or service. For example, the company Telstra acquired a legal monopoly over providing telecommunications service in Australia. b. Natural Monopoly: Natural Monopoly is the monopoly obtained naturally without any legal procedures. Such a monopoly is obtained due to the advantage of good-will, plentiful resources, good site etc.For example, Middle East enjoys a natural monopoly over the gasoline resources in the area.
Although many firms enjoy a monopoly over their products, seldom do such regulations benefit the customers, except for the case of public monopoly. Since there no competitions, the competitive advantage is also denied to the customers and mostly they are forced to buy the product despite their hesitation. However, monopoly is most enjoyed by the firms exercising it.
- Goodwin, Nelson, Ackerman, Weissskopf. (2009). ‘Microeconomics’, 2nd edition.