The Market Structure of Oreo Is Monopolistic Competition Essay

The Market Structure of Oreo Is Monopolistic Competition Essay.

i) Many sellers and buyers

There are many sellers and buyers for the cookies industry. Besides that, different sellers set different prices and there are different products with the same brand. Some sellers do not follow the average Oreo price. Other brand will not have this same product. Therefore they can set their own market price. One of the examples is Oreo can alter their prices according to both consumer demands and the prices set by their rivals. If their rivals set a higher price, the Kraft Company will need to set their prices lower than their rivals to attract more customers.

Even though Oreo is under one of the monopolistic competition’s characteristic, price maker, but the price of this product would tend to be all around the same without a huge or an obvious difference.

ii) Easy market for entry and exit

Other than that, Oreo has faced many different competitors because monopolistic competition is an easy market for entry and exit.

For example, Cream-O and Newman-O are also selling biscuits and these two companies are quite well-known in our nation. This is because there is a relative freedom of entry and exit into market, new firms will enter as they are encouraged by the existence of abnormal profits. New entrants will increase supply causing the price to fall. As price falls, the average revenue and marginal revenue curves shift inwards as revenue from each sale is now less.

iii) Advertisement

Hence, Kraft Company has spent a lot of money on advertisements to convince consumers to buy their product and let them know about the benefits and the latest flavors or promotion of the product. For an example, Oreo promotes its own new flavor, Blueberry Ice Cream Flavoured Oreo that has a minty blueberry taste through advertising on magazines.

The Market Structure of Oreo Is Monopolistic Competition Essay

A Water Concessioners Porters 5 Forces Analysis Essay

A Water Concessioners Porters 5 Forces Analysis Essay.

1. Rivalry among existing competitors- Low to Non-Existent. Since it is under concession agreement, there is no other water utility company that can engage any business similar to A Water Utility concessioner, unless granted by the government under special agreement and with full knowledge and approval of A Water Utility concessioner.

2. Threat of new entrants- Low to Non-Existent. Companies that may want to apply for the concession must first comply with government requirements and also must have a substantial amount of capital investment (around 6 Billion Dollars starting capital), not to mention the technical expertise to run and maintain a water utility company.

3. Bargaining Power of Supplier- Medium. Although the primary raw material of A Water Utility concessioner is water which is basically free, the materials used for distribution line maintenance and expansion are quite few. Though this is the case, A Water Utility concessioner still has a slight control on the pricing of these materials unless the raw materials for these items like resin, steel, alum coagulating chemical used in treating raw water), etc.

increases.

4. Bargaining Power of Customer- Medium. This is due to the regulated tariff by the government under the MWSS Regulatory office which deals directly with A Water Utility concessioner.

5. Threat of Substitute- Low. The small water refilling stations also get their water from A Water Utility concessioner. With regards to larger water bottling companies, this is just a small portion of the pie which A Water Utility concessioner can manage to absorb. Other than water for drinking purposes, there is no substitute for A Water Utility concessioner’s service.

In summary, the water service providing business of A Water Utility concessioner is very viable with very little or non-existing threats of new entrants and rivals, with a very manageable bargaining power for both suppliers and customers and virtually no substitute. As a business strategy, A Water Utility concessioner’s main goal is to provide outstanding service to its customers for both water and waste water services and become a world class water utility company.

A Water Concessioners Porters 5 Forces Analysis Essay

Monopoly market structure Essay

Monopoly market structure Essay.

A monopoly is a market structure where there is merely one manufacturer/supplier for a product. The lone business is the industry. Entrance into such a market is controlled based on elevated costs or additional obstacles, which may be, political social or economic. In an oligopoly, there are simply a limited number of firms that create an industry. This top quality assemblage of firms has control over the price in addition to a, monopoly; an oligopoly also has extraordinary obstacles to admittance.

The goods that the oligopolistic companies produce are regularly practically equal and, therefore, the corporations, which are contending for market share, are interdependent as an effect of market forces. There are two extreme types of market structure: monopoly and, its differing, perfect competition. Perfect competition is categorized by various consumers and suppliers, several goods that are comparable in nature as well as result, several alternatives. Perfect competition means that there are limited; barriers to entrance for fresh companies plus prices are determined via supply and demand.

Consequently, manufacturers within a perfectly competitive market are tied to the prices determined by the market and do not have leverage of any kind. For example, within a perfectly competitive market, ought a sole manufacturer elect to grow its sales price of a product; the buyers can then turn to the closest competitor for a superior price, making any manufacturer that’s raising its prices to lose market share as well as profits?. In some trades, there is no competition there are no substitutes.

In a market that has merely one or limited sellers of a product or service, the manufacturer can regulate price, meaning that a buyer does not have a choice, cannot make the most of his or her overall utility and has have very slight effect over the price of products. Economists adopt that there are a number of diverse consumers and suppliers in the marketplace. This shows that we now have competition within the market, this allows price to change in reaction to fluctuations in supply and demand.

Additionally, for just about every single good there are substitutes, for example if one product comes to be too expensive, a consumer can select an inexpensive substitute in its place. In a market with several consumers and suppliers, together the consumer and the supplier have identical capability to effect price. For example, a government can generate a monopoly above an industry that it would like to control, such as energy.

An additional cause for the barriers alongside entrance into a monopolistic industry is that many times, single entity has the limited rights to a natural resource. Profit Maximization Remember that the objective of a trade is to maximize profits. Per se, a firm should produce so that profit is at its maximum. Based on marginal terms, If KJ < OP, manufacturing 1 more item will enhance more to RC than to HG, thus the monopoly would grow quantity. If KJ > OP, manufacturing 1 more item will enhance more to RC than to HG, thus the monopoly would drop quantity.

First when RC = HG (and KJ cuts OP from below) is profit maximized. A monopolist will usually yield less than a publicly resourceful level of output, as well as charge a very high price. Could the exceeding usual profits of a monopoly a social cost? Not ordinarily, based on the fact that profit is still part of surplus nevertheless has been shifted from buyers to manufacturers. Social cost rises from inadequately small output which leads to the unprofitable loss.

Nonetheless, if the monopolist applies some of its usual profits to lobby in order to preserve a monopoly then this could be a benefit cost to society. Price discrimination is vending the identical product to unlike consumers/markets at dissimilar prices. Examples consist of film tickets, commercial airline tickets, and reduction coupons. In order to exercise price discrimination, it has to be easy to distinct consumers into sets. These sets are determined built on their individual elasticity’s to demand.

The firm needs to as well be able to stop resales between sets, and arbitrage, which in definition is purchasing where a product is low-priced and vending where it is expensive. Price Discrimination can raise the profit of monopolies; subsequently they can charge a greater price to individuals with less elastic demand, and a lesser price to individuals with more elastic demand. In this mode, a trade does not have to lower prices to all consumers in order to vend more products.

Monopoly market structure Essay

Abuse of monopoly power Essay

Abuse of monopoly power Essay.

Imagine what it would be like if there was only one bakery in your home town, and no possibility of opening up a new one because of the fact that there are no shops for rent. People who are looking to get their hands on freshly baked bread would have no choice but to go to the one bakery. We say that the baker is a monopolist; that is, he is the only baker in the market and is thus able to set the price at whichever levels he wants.

Chances are that the price of bread is going to be considerably higher than if the baker had to compete with others for consumers.

The result, as this lesson deals with, is market failure as a result of the abuse of monopoly power.

MONOPOLY POWER AND MARKET FAILURE A monopoly exists when there is only one producer of a certain product. Other firms are prevented from competing with the monopolist because of the very high barriers to entry.

Because of this, the monopolist is a price setter – it can itself decide what price to charge so long as it covers the cost of production.

It is often argued that Microsoft has a monopoly on the operating system market, making consumers pay a very high price for Windows as they buy a new computer. Another example comes from supermarkets, which may acquire a monopoly in a neighbourhood if planning permission to build other shops is denied. It can then sell the same products as it would sell before, but for a much higher price. Hence, in such markets, the price and quantity demanded of the product do not reflect a true equilibrium – abuse of monopoly power is a kind of market failure resulting from the ability to charge a higher price than it otherwise would.

Moreover, the quantity on the market is restricted below what is socially optimum by the monopolist. This results in a welfare loss, as consumer surplus is not maximised, which is represented by the grey triangle in the diagram below. Examiner Tip However, in cases where we have a negative externality (e. g. pollution) it would actually be good to have a monopolist that restricts the quantity – the welfare loss would rather be a welfare gain in this case.

Government intervention is common in the case of monopolies, if they abuse of their power and damage consumers’ welfare. Possible responses include: ?Legislation – competition policies to ensure that markets are not dominated by one firm only, as the EU proceedings against Microsoft show. ?Regulation – for example, planning regulations could be relaxed to allow more shops to open in the same area where the supermarket operates. ?Nationalisation – this is the case of national monopolies where the state takes over a business and regulates prices in the social interest.

E. g. Following the financial crisis of 2008 banks, insurance companies and car manufacturers were nationalised in the USA and UK. ?Trade liberalisation – allowing foreign firms to compete in the national market contributes to breaking up monopolies that were formed due to the lack of internal competitors. What you should know ?

Monopolies act as single producers in a market and can set prices and quantity. ?Their power may be abused, damaging consumers’ welfare. ?Government intervention can limit abuse of power through legislation, regulation, nationalisation and trade liberalisation.

Abuse of monopoly power Essay

Monopoly for the Potato chip industry Essay

Monopoly for the Potato chip industry Essay.

A monopoly is a company that provides a product or service for which there are no close replacements and in which significant barriers of entry can either prevent or hinder a new company from providing competition (Case, et al. , 2009). Take into consideration the potato chip industry in the Northwest are not only competitively structured but are in long-run equilibriums. The firms were earning a normal rate of returns and were competing in a monopolistically competitive market structure. In 2008, two lawyers quietly bought up all the firms and then began operations a monopoly called “Wonks”.

For them to operate efficiently they had to hire a management consulting firm, which will estimate the different long-run competitive equilibrium. With this change comes several important things to consider that will be effected one being the stakeholders involved, price changes and the market structure to be most beneficial to the new corporation. By consolidating the oligopoly members of the Northwest potato chip industry, located in the United States, the legal professionals created a monopoly (Lindblom, 1948, p.

671). By taking away competition in the region, Wonks would now control their position on the market demand curve, where they can go from the produced quantity, to price point, even to where the product can be sold. Monopoly by definition is, “exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices,” (Monopoly, 2012). In all actuality a package product like a potato chip could not hold market domination for long.

Other manufacturers will transport their product into this region like paying slotting allowances, in order to obtain products for placement on the supermarket shelves. An industry that that comprises just one firm producing a product for which there are no close substitutes are called monopolies (Case, et al. , 2009). Although a monopoly has no other firms to compete with it still constrained by market demand (Case, et al. , 2009). With that said a monopoly must choose both price and quantity of outpost simultaneously because the amount that it will be able to see depends on the prices is sets.

However if the price is too high, it won’t sell anything. Thus a monopolist will set prices to maximize profit (Case, et al. , 2009). Stakeholders will both benefit and be hurt by the assembly of the new market domination. The Government will receive more revenues for taxes as the prices are raised and new income is earned for Wonks Industry. In the even that the business looks suspicious they may be forced to respond to a demand from other potato chip producers or consumers, to protect them from inappropriate or unfair trading practices (Lindblom, 1948, p. 671).

Some cooperating enterpises like supermarkets or corner stores, are more than likely to see an ability to sell Wonks products at higher prices to consumers, perhaps motivated by higher prices being charged to them by Wonks. Since Wonks are assumed to be the only potato chip industry in town the stores can agree to higher prices. They do this because the demand will be higher if the competition is lower (Lindblom, 1948, p. 671). Consumers on the other hand won’t see any advantage, since the only difference in the market is not having any competition (Case, et al. , 2009).

Inevitable price increases will come until a consumer refuses to pay the price. Because of that the company will have to reach a point on the demand curve where they will charge only what the customer will pay for the product (Case, et al. , 2009). Many technological and strategic forces shape market structure, including economies of scale, cost of differences among firms, entrants’ expectations and entry barriers (Bresnahan, 2012, 531). The empirical models of market structure from qualitative chose models of firms’ entry decisions. The models are presumed that we do not observe entrants’ revenues or costs (Bresnahan, 2012, 531).

Economic models are used to study market concentration in retail markets for new automobiles. One entry summarizes the competitive cost of entry. The second statistic measures the presence of entry barriers or differences in entrants’ fixed costs (Bresnahan, 2012, 531). Monopolistically competitive firms realize that the decisions they make will be reacted to by other members of the club (Case, et al. , 2009). Pricing will be profitable and comparable, product will be widely available, and vendors will try to attract certain segments with pricing or product offerings (Case, et al. , 2009).

It is likely the pro-monopoly potato chip companies made similar margins, their products are found next to each other on super market shelves, and the companies were similarly profitable (Bresnahan, 2012, 531). Enterprises derived from Monopoly ran industries, will stay to look for ways to maximize their profits (Case, et al. , 2009). This will allow products to remain the same, therefore nothing will change in how their were offered. The delivery will be consolidated, but plants not having cost advantage will be left behind in favor of lower cost facilities (Case, et al. , 2009).

When a monopoly becomes empowered the product mixes will be reviewed and the low production/less profit generating product will be eliminated (Case, et al. , 2009). In doing so a consumer could find one type of chip when there were actually three different types of chips available. The size of the products being offered, as well as the prices and the volume of the products will be tampered with as a result of market forces not influencing these decisions. (Case, et al. , 2009). Between monopoly and perfect competition are a number of other imperfectly competitive market structures (Case, et al. , 2009).

Oligopolistic industries are made of a small number of firms where each has a degree of price setting power. A Monopolistically competitive industries are made up of a large number of firms that acquire price setting power by differentiating their products or by establishing a name (Case, et al. , 2009). The sort term life of a monopoly market forces and consumer demand will all act to make the monopolistically competitive firm the best for both Wonks and for consumers. This can be assessed through the Sherman Anti Trust Act to agencies like the Federal Trade Commission and the Department of Justice.

A monopolistic competitive firm enjoys some of the advantages of both monopoly and free enterprise (Case, et al. , 2009). The Chip market has barriers that will act to keep all the players in the chip market safe, and margins will be protected while business are happy with their market share. They can also produce and sell with the knowledge that they will not have to manage production volumes or pricing in their marketplace. Some members of the oligopoly will enjoy harmonious business times (Case, et al. , 2009). Consumers can benefit from limited competition and have product provided at prices the free market will set.

product shortages, elimination of marginal products, price spikes will not affect their marketplace (Case, et al. , 2009). The chips will be available where the consumer expects and at price points they expect. The price will decrease or increase which will be industry wide this will keep from the producer from being singled out for price increases (Case, et al. , 2009). A monopoly is an industry with a single firm in which the entry of new firms is blocked. An oligopoly is an industry in which there is a small number of firms, each large enough to have an impact on the market price of its outputs.

Firms that differentiate their products in industries with many producers and free entry are called monopolistic competitors. A monopoly is a company that provides a product or service for which there are no close replacements and in which significant barriers of entry can either prevent or hinder a new company from providing competition (Case, et al. , 2009). With this change comes several important things to consider that will be effected one being the stakeholders involved, price changes and the market structure to be most beneficial to the new corporation (Case, et al., 2009).

By taking away competition in the region, Wonks would now control their position on the market demand curve, where they can go from the produced quantity, to price point, even to where the product can be sold. Stakeholders will both benefit and be hurt by the assembly of the new market domination. Monopolistically competitive firms realize that the decisions they make will be reacted to by other members of the club (Case, et al. , 2009).

Bibliography Bresnahan ,Timothy F. & Reiss, Peter C. Entry in Monopoly Markets. The Review of Economic Studies.

Vol. 57, No. 4 (Oct. , 1990), pp. 531-553. Case, K. E. , Fair, R. C. , and Oster, S. E. (2009). Principles of Microeconomics. (9th ed). Upper Saddle River, New Jersey: Pearson Prentice Hall. Lindblom, Charles E. The Union as a Monopoly. The Quarterly Journal of Economics , Oxford University Press Vol. 62, No. 5 (Nov. , 1948), pp. 671-697 Monopoly. (n. d. ). Collins English Dictionary – Complete & Unabridged 10th Edition. Retrieved October 08, 2012, from Dictionary. com website: http://dictionary. reference. com/browse/monopoly.

Monopoly for the Potato chip industry Essay

Effects of monopolies in the Usa economy Essay

Effects of monopolies in the Usa economy Essay.

The concept of a monopoly is largely misunderstood and the mere mention of the term evokes lots of emotions that make clear judgment almost impossible. The standard economic and social case for or against monopolistic businesses is no longer straightforward. According to Mankiw (2009) a monopoly is defined as a market structure characterized by a single seller of a unique product with no close substitutes[1]. When a business dominates a market, it becomes a monopoly by virtue of its power.

A company (or a group of affiliated companies) is considered to have a dominant position in a particular market if it exerts a decisive influence over the general conditions of trade in that market or can restrict access to that market for other businesses.

Markets keep changing with the times and so are the conditions in which businesses must operate regardless of whether they have any noticeable market power. [2] Monopolies have contributed significantly in transforming the US economy to be the leading economy worldwide.

This is largely due to the benefits arising from legal monopolies created by the Patent and copyrights law. Monopolies are in effect powerful tools of spurring economic growth in the US. How do monopolies arise? Two major conditions contribute to formation of a monopolistic trade environment. A product which has no close substitutes faces no competition thus its producer becomes a monopolist. Exclusive ownership of a key resource may lead to creation of a monopoly. A classical case is exemplified by the control of the computer hardware, market by International Business Machines (IBM) for nearly forty years.

Due to its market dominance over the hardware, institutions that intended to initiate a project had to do so with IBM. (Rise in Monopolies, n. d. ) Monopolies also develop where there are barriers to market entry. These barriers are obstacles that make it difficult or impossible for any potential competitors to penetrate a particular market. Such barriers could either be natural or legal constraints that protect a firm from competitors. A natural monopoly arises when technology for producing a product enables one firm to meet the entire market demand at a lower price than two or more firms could.

Legal monopolies develop in a market in which competition and entry are restricted by the concentration of ownership of a natural resource or by the granting of a public franchise, government license, patent, or copyright. When Microsoft licensed an operating system from Seattle Computer Company in 1981 their explosion into dominance began. Microsoft’s dominance over the operating systems enabled it to diversify into producing spreadsheets and word processors. These new software were made such that they worked best with its operating system hence tightening Microsoft’s grip of the market.

(Mises,1981, p. 86). Certain circumstances do lead to creation of near monopolies or oligopolies. An oligopoly arises when a small number of firms have relatively large market shares. Though each firm is independent, interdependence may arise whereby one firm’s actions influence the profits of the other firms. In addition, when a small number of firms share a market, they can collude to increase their profits by forming a cartel and acting like a monopoly. Default monopolies may arise when there is lack of sufficient knowledge or interest on a particular subject[3].

A firm may end up being a small monopoly by having an upper hand when it comes to accessing knowledge on a particular trade. A case in point is the sole garbage collecting company in Taos. Are monopolies beneficial or detrimental to the US economy? Monopolies have been in existence throughout business history and several corporations have achieved complete dominance over a wide array of industries. The monopolies have been accused of charging exorbitant prices to earn super profits with little regard to consumer welfare .

A fundamental question is; Are these business practices ethical? (Haas, 2006) Citizens of The United States value competition in their market system. Competition not only keeps prices low and encourages production of new products to the market place but also fosters innovations that help to bring down the cost of doing business. Contrary to popular belief, monopolies are not illegal in the United States . Indeed a government-created monopoly is exemplified by the patent and copyright law. This is a law that governs intellectual property.

A pharmaceutical company that develops an original drug can patent it for several years during which it enjoys exclusive production rights. Such a patent offers the producer monopoly status where the producer can charge higher prices and earn greater profits. On the other hand, such a law is beneficial because it encourages innovation and continuous research within pharmaceutical companies to develop new and more superior products. Moreover only big monopolies with significant market power have the capacity to carry out research and development on their products.

This leads to innovation since new knowledge is applied to the production process. The nearly twenty year monopoly enjoyed by Microsoft in manufacturing of its computer software has not only ensured harmony and uniformity in computer software but also facilitated accessibility of computers by the greater population. Consequently, this has lead to the information technology revolution characterized by easier access to information by US citizens and thus the US economy remains to be the world’s superpower. It is through such innovations that new channels of business for example e-commerce have sprung up .

Citizens can now buy items and find good deals through iPods and other innovative devices arising from research and development by giant firms. From a different perspective, in the absence of real competition a monopolist may lack an incentive to invest in new ideas or consider consumer welfare. Monopolies may in certain instances offer inferior services or products. Amtrak enjoys a monopoly status in the passenger rail system. It has been criticized severally for failing to develop hybrid high-speed locomotives that save on energy consumption as well as failing to service some of its tracks that remain to be under- par conditions.

Donald,D (1997) suggests that monopolization can be advantageous to the consumers by enabling cheaper production due to economies of scale. A monopolist may manage to maintain lower marginal costs due to economies of scale and the advantages of division of labor . Consequently; this translates into higher output at lower prices than would have been possible under competitive conditions. Such economies of scale also tend to guarantee uniform output and harmony in product characteristics.

The benefits arising from economies of scale may be eroded due to X inefficiencies[4]. Monopolistic organizations cut on expenses that would have been wrought about by competition and by so doing they deny business opportunities to various support organizations like advertising and public relations firms. This has the net effect of creating unequal wealth distribution since vast wealth ends up in the hands of a few individuals. Another issue to ponder over is what to make of those monopolies that have come into existence simply by being better than all the rest.

A case in point is the Wal-Mart stores which has been accused of running small shop-owners out of business in locations where it opened stores due to its retailing efficiency. Sometimes a market dominated by few firms/sellers does not always indicate the absence of competition, it can reflect the success of leading firms in providing better quality products, more efficiently, than their smaller rivals. Some monopolies throttle the creativity of enterprises and are a detriment in certain sectors. A classical example is the United States Postal Service that has continuously offered US citizens poor quality services at the expense of taxpayers.

This sector needs to undergo restructuring in order to give market access to potential investors and thus improve on service delivery to the citizens. Inefficient production firms that enjoy monopoly status in essence fail to make optimal use of their scarce resources and in such circumstances, government intervention may be warranted through application of competition policy of market liberalization. A major preposition that makes monopoly undesirable is that monopoly leads to a failure in the market mechanism because the monopoly price is generally higher than both the marginal and average costs.

This in turn results in the monopolist offering an exploitative price to the consumer since this price is above the cost of resources used to make the product. Such actions restrict free trade and consequently the consumers’ needs and wants are not properly satisfied because the product is being under-consumed. Some monopolies especially in the pharmaceutical industry have been criticized for monopolizing drugs for certain ailments like cancer and Aids though the patent laws. Such giant pharmaceutical companies have been accused of engaging in profiteering schemes at the detriment of the welfare of the American citizens.

The higher average cost of production that may arise if there are inefficiencies in production also means that the firm is not making optimum use of its scarce resources. This may necessitate some form of government intervention for example by market liberalization in order scale down the monopoly dominance. Government created monopolies in sectors that require enormous capital outlays have ensured consumers have access to certain crucial services which would not have been possible were such ventures to be entrust solely to private investors.

These state-run monopolies are service providers whose main motivation is not profit but to cater for the welfare of the citizens[5]. Their services are crucial in providing enabling environments for the citizens to explore and achieve their goals in life. Monopolies arising from merges and restructuring can operate more efficiently and thus provide better quality services to the citizens. The mergers eliminate several layers of bureaucracy and create efficient standardized processes. [6]However it is worth noting that some mergers may deprive consumers the benefit of choice.

Conclusion Monopolies apparently exist because the quantity demanded in the market is completely satisfied by the monopoly (Peter 2003). The widespread view that the monopolist can fix prices at will is erroneous because the laws determining monopoly prices are the same as those which determine other prices. A monopolist can best serve its interests by separating consumers into classes based on their purchasing power. A company that controls all aspects of a field can ensure harmony and uniformity.

Microsoft offers an outstanding example on this front whereby the greatest proportion of computers run on their software thus enhancing compatibility. Monopolies have resulted in great innovations and immense growth in several sectors of the economy while in others they have been detrimental for example through collapse of small enterprises or delivery of poor quality services. Monopolies are both beneficial and detrimental to the economy and a cost benefit analysis needs to be done to ascertain the role played by individual monopolies in any particular market.

This demands a precise definition of what actually constitutes a market because in almost every industry, the market is highly segmented into different products. Globalization has made it very difficult to ascertain the real effects of monopoly power in any particular market more so due to the effects of the rapidly increasing competition. With proper regulation, monopolies have not only positively contributed towards economic progress but they also provided a stimulus for liberalization of major market segments.

Liberalization in return has opened up many channels of investment and the net effect has been a great expansion in available business opportunities on a global scale.

References Donald,D. (1997). Microeconomics: The Analysis of Prices and Markets . New York, Oxford University Press. Haas,W. (2009) Microeconomics : The Effects of Monopolies . Retrieved Nov. 17, 2009, from http://www. associatedcontent. com/article/85453/microeconomics_the_effect_of_monopolies_pg3_pg3. html? cat=3, Mankiw,N. G(2009). Principles of Microeconomics: South Western Cengage Learning Mises,V. L. (1981).

Socialism: An Economic and Sociological Analysis Indianapolis: Liberty Fund. Peter,P. (2003)”Bullying the Monopoly” Arflington VA: Security Management. .47, 12; Rise of monopolies. Retrieved Nov. 17, 2009, from http://cse. stanford. edu/class/cs201/projects-95-96/corporate-monopolies/development. html ———————– [1] This applies largely to pure monopoly where by the monopoly has total control over output and prices within a free and fair market with near perfect competition.

[2] A common assumption is that a company is said to dominate a market if it controls over 65% of that market. As a rule of thumb, if a company gains control of 30 % of a market, it poses the risk of acquiring monopoly status but this depends on the size of other competitors in the market. [3] Default monopoly is in reference to a hypothesis advanced by Mankiw in an effort to explain how some non-convectional monopolies come into existence. [4] X inefficiency is a term first coined by Harvey Libenstein.

It refers to the production losses incurred by monopolies arising from economies of scale and lack of incentives to be innovative. [5] The services of some of the state run monopolies are crucial in supporting the American citizens carry out their daily duties and thus their output in all spheres of their lives is thought to be enhanced by such ‘enabling environments’ [6] Mergers create more stable organizations that can guarantee continuous output of quality services and for an extended period of time unlike smaller companies that can be under constant threat by negative market threats.

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Effects of monopolies in the Usa economy Essay

Oligopoly: monopoly and firms Essay

Oligopoly: monopoly and firms Essay.

1) Small number of sellers:- There is a small number of sellers under oligopoly. Conceptually, however, the number of sellers is so small and the market share of each firm is so large that a single firm can influence the market price and business strategy of the rival firms Interdependence of . 2) Decision making :- The competition between the firms takes the form of action, reaction, and counteraction between them. Since the number of firms in the industry is small, the business strategy of each firm in respect of pricing, advertising, product modification is closely watched by the rival firms.

3) Interdependence:- The firms under oligopoly are interdependent in making decision. They are interdependent because the number of competition is few and any change in price & product etc by any firm will have a direct influence on the fortune of its rivals, which in turn retaliate by changing their price and output. Thus under oligopoly a firm not only considers the market demand for its product but also the reactions of other firms in the industry.

No firm can fail to take into account the reaction of other firms to its price and output policies.

There is, therefore, a good deal of interdependences of the firm under oligopoly. 4) Importance of advertising and selling costs :-The firms under oligopolistic market employ aggressive and defensive weapons to gain a greater share in the market and to maximise sale. In view of this firms have to incur a great deal on advertisement and other measures of sale promotion. Thus advertising and selling cost play a great role in the oligopolistic market structure. Under perfect competition and monopoly expenditure on advertisement and other measures is unnecessary. But such expenditure is the life-blood of an oligopolistic firm.

5) Group behaviour :-Another important feature of oligopoly is the analysis -of group behaviour. In case of perfect competition, monopoly and monopolistic competition, the business firms are assumed to behave in such a way as to maximize their profits. The profit-maximizing behaviour on his part may not be valid. The firms under oligopoly are interdependent as they are in a group. 6) Indeterminateness of demand curve :-This characteristic is the direct result of the interdependence characteristic of an oligopolistic firm. Mutual interdependence creates uncertainty for all the firms.

No firm can predict the consequence of its price-output policy. Under oligopoly a firm cannot assume that its rivals will keep their price unchanged if he makes charge in its own price. As a result, the demand curve facing an oligopolistic firm losses its determinateness. The demand curve as is well known, relates to the various quantities of the product that could be sold it different levels of prices when the quantity to be sold is itself unknown and uncertain the demand curve can’t be definite and determinate. 7) Elements of monopoly :- There exist some elements of monopoly under oligopolistic situation.

Under oligopoly with product differentiation each firm controls a large part of the market by producing differentiated product. In such a case it acts in its sphere as a monopolist in lining price and output. 8) Price rigidity :-Under oligopoly there is the existence price rigidity. Prices lend to be rigid and sticky. If any firm makes a price-cut it is immediately retaliated by the rival firms by the same practice of price-cut. There occurs a price-war in the oligopolistic condition. Hence under oligopoly no firm resorts to price-cut without making price-output decision with other rival firms.

The net result will be price -finite or price-rigidity in the oligopolistic condition. 9) Barriers to Entry:- Firms in an oligopolistic industry attain and retain market control through barriers to entry. The most noted entry barriers are: (1) exclusive resource ownership, (2) patents and copyrights, (3) other government restrictions, and (4) high start-up cost. Barriers to entry are the key characteristic that separates oligopoly from monopolistic competition on the continuum of market structures. With few if any barriers to entry, firms can enter a monopolistically competitive industry when existing firms receive economic profit.

This diminishes the market control of any given firm. However, with substantial entry barriers found in oligopoly, firms cannot enter the industry as easily and thus existing firms maintain greater market control. 10) Homogenous or differentiated Product:- Firms in oliogopolistic industry may produce either homogenous or differentiated products. If the firms produce a homogenous product like cement or steel the industry is called pure or perfect oligopoly. If the firms produce a differentiated product like automobile, the industry is called differentiated or imperfect oligopoly.

11) Lack of uniformity:- Another features of oligopoly is lack of uniformity in the size of firms. Some firms may be very large and others may be small. For example the share of Maruti Udyog is 86% in small car segment of the Automobile industry, while the share of Ceilo or Tata is comparatively much less. 12) Keen competition:- The oligopoly is characterized by the presence of keen competition among rivals. Under oligopoly, the number of seller is so small that any move by any one seller immediately, affects the rival sellers. As a result, each firm keeps a close watch on the activities of the rivals firms and prepare itself to counter it.

To an oligopolist, business is a life of constant struggle as market conditions necessitate moves and counter moves. This kind of competition is unique and is not found in other type of markets. Oligopoly is therefore the highest form of competition. 13) Uncertainty:- In an oligopoly due to interdependence of firms on each other, no certain prediction about the behaviour of different firms can be made. It is difficult to calculate the consequence of current economic change on the basis of facts already in existence. So uncertainity prevails in oligopolistic market. Oligopoly Classification Oligopoly can be classified on different basis: 1.

Pure Versus Differentiated Oligopoly- Oligopoly is classified as pure or perfect and differentiated on the basis of product differentiation. If the products of various firms are homogeneous the term pure oligopoly is applied. On the other hand, oligopoly is imperfect then the competing firms are not homogeneous. The stronger the differentiation, the weaker will be feeling of mutual interdependence. Differentiated oligopoly is characteristic of a very large portion of the economy. 2. Open Oligopoly versus Closed Oligopoly- On the basis of possibility of entry of firm’s oligopoly may be classified into open oligopoly and closed oligopoly.

An open oligopoly refers to that market situation which allows free and easy entry of new firms. Closed oligopoly on the other hand implies that the industry is controlled by a few firms and entry of competitors is prevented. 3. Partial oligopoly and Full Oligopoly- Yet another classification of oligopoly is based on the presence or absence of price leadership. On this basis partial oligopoly refers to the predominance of the industry by one or a few large firms followed by a cluster of small firms.

Full oligopoly is a state of less equal status with no price leadership. 4. Collusive and Non-Collusive Oligopoly- On the basis of the existence or non-existence of agreements among sellers we have collusive oligopoly, other otherwise will be collusive. 5. Syndicated Oligopoly and Organized oligopoly- Oligopolies which have centralized selling through syndicates have been characterized as syndicated oligopolies. These which have entered into some agreement about price, input quotes and sharing of the market have been termed as organized oligopolies.

Oligopoly: monopoly and firms Essay

Is Microsoft a monopoly? Essay

Is Microsoft a monopoly? Essay.

The Microsoft Corporation has lead people believe that they were attempting to gain monopoly power in the computer operating systems market. A monopoly market structure consists of having one firm that has control of the resources and market by selling a unique good that has no available substitutes, in which; make it very difficult for others to enter into this market. In America, we enjoy a free market rather than monopolies because monopolies create disadvantages to our society. However, having monopolistic power in a market is not necessarily bad, in some cases, monopolies are tolerated.

There is reason to believe that Microsoft was trying to gain monopoly power, this is why they were investigated for anti-competitive activities. To regulate corporations, the federal and state governments put in place antitrust laws. These laws helped to keep companies from becoming to large to prevent monopolies and these laws encourage competition. Microsoft Corporation was investigated for breaking such laws, trying to monopolize and competed to be dominate the web browser marketplace.

As Gilbert stated, “Microsoft engaged in anticompetitive conduct designed to maintain its operating system monopoly to the detriment of consumers” (2001, p.25).

The U. S. department of Justice began the investigation of Microsoft’s predatory practices when a complaint accusing Microsoft using “anticompetitive contracts with personal computer manufacturers to maintain an unlawful monopoly in this market” (Gilbert, 2001, p. 26). This gives us buyers no substitutes for purchasing a personal computer and creates imperfect competition for this industry. This type of competition and rent seeking behavior is crippling to our country by damaging economic growth. Microsoft wanted to “organize themselves in a special interest group in order to improve their ability to affect distributional outcomes.

The process of expending resources in an attempt to influence public policy outcomes is rent-seeking” (Krueger, 1994, p. 292). Gilbert (2001) states that Microsoft gained market power and achieved monopoly power in the market for operating systems for Intel-compatible desktop personal computers to protect its dominance over Windows operating system from other competitive producers and suppliers (p. 20). One way they achieved power is when Microsoft bundled up its own web browser, Internet Explorer, with Windows operating system.

The bundling of their products gave them leverage to sell them as a single unit. This strategy destroyed another competitors company, Netscape. This should how Microsoft deliberately was creating an imperfect competition by not meeting the conditions of a perfect competition. In a perfect competition no one supplier can influence prices. However, Microsoft was establishing the cost of personal computers, therefore, created an imperfect competition in the operating systems market and allowed them selves to become price makers of this product.

Price makers are the monopolists that have control over the price and quantity of their item. Microsoft was using strategies to maximize their profits, by adjusting prices to attain financial gain. This type of strategy is known as monopoly pricing. A monopolist price is higher than the price that would be found in a competitive industry. To establish or determine the price of the product, Microsoft or the monopolist will consider consumer demand, which is a downward sloping demand curve, when marginal revenue equals marginal costs.

Marginal revenue being the change in total costs divided by the change in quantity, which is always less than the price of the good and marginal cost being the value of the additional resources needed to produce another unit of output or the change in total costs over the change in quantity. This causes a problem in the economy and the operating systems market. Monopolies alone create problems to our economy. Monopolies are allocatively inefficient or x-inefficient. A monopoly firm produces less than the socially efficient quantity of output.

Also, a monopoly is less likely to cut costs because they do not face competition. Due to the small amount of product produced, monopoly firms can charge a price that exceeds the marginal cost of production, which generates a deadweight loss to our society or consumer loss surplus. We as consumers prefer to have substitutes, therefore, more firms in the industry. However, Microsoft was creating barriers of entry to create a perfect competition. McKenzie (2000) states, “Judge Jackson found that Microsoft had substantial market dominance which applied barriers to entry” (p.3).

Legal barriers give exclusive rights granted to the firm or inventor to supply a good or service while government controls entry in the industry, some examples are patents or copyrights, and government licenses. The government gives grants and privileges to firms to be the sole providers of a good or service. An example of a Government monopoly is the U. S. postal service. Other barriers that exist in a monopoly-structured market are large start up costs, price-cutting, resource ownership and advertisement.

A natural barrier or a natural monopoly exists because of a unique raw material that is supplied and is served at a lower price to customers than if there were two firms supplying the good or service. This type of monopoly proves that monopolies are not always unfavorable. A natural monopoly that produces a “good or service is at a lower price due to economies of scale, which is experienced when an increase in the production of a good or service causes a decrease in the average total cost of producing the good or service” (Vaubel, 1984, p. 29).

An example of a natural monopoly is electric power distribution firm or trash Collection Company. A monopoly market structure can be detrimental to the welfare of society and causes unnecessary power when we encourage a free competitive market. However, in some cases monopolies can also benefit us, by having one firm to provide us a natural good or service. However, the computer industry is not a natural service, even though we would like to believe that in our highly technological society. Microsoft introduced us to these goods and has attempted to monopolize this industry to prevent others to compete fairly.

As a result, Microsoft was investigated for making the operating systems of personal computers industry leverage into a monopoly, therefore, disobeying laws, obligation to the economy, and hobbled the innovation process. Judge Thomas Jackson issued and took action to stop Microsoft from monopolizing. He ordered a remedy, which forced Microsoft to be split into two separate units. Through 21 years of investigation and behavioral remedies, Microsoft is officially at an end over fighting these antitrust lawsuit battles.

References Gilbert, R. J. , Katz, M.L. (2001). An Economist’s Guide to U. S. v. Microsoft. Journal of Economic Perspectives, 15(2), pp. 25-44. Retrieved from EBSCOhost database 08953309. Krueger, A. O. (1974). The Political Economy of the Rent-Seeking Society. The American Economic Review, 64(3), pp. 291-303. McKenzie, R. (2000). Microsoft’s Application Barrier to Entry: The Missing 70,000 Programs. Policy Analysis, 380(1), pp. 1-21. Vaubel, R. (1984). The Government’s Money Monopoly: Externalities or Natural Monopoly? Kyklos, 37(1), pp. 27-32. Retrieved from EBSCOhost database 00235962.

Is Microsoft a monopoly? Essay

Monopoly and fair return Essay

Monopoly and fair return Essay.

Question 2: Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable? LO1 The major barriers to entry in an industry are economies of scale, legal barriers such as patents & licenses and other strategic or pricing barriers. Economies of scale occur only in large firms who are able to reach a minimum efficiency scale point and operate at that point for a long period.

This high TC results in a low ATC and high efficiency. Once a huge firm innovates, it protects that very idea or product through patents disallowing other firms to copy their product. Government licensing could also result in limited entry of firms because they might not provide permission for another firm to enter the market. Another means to reduce competition within an industry is to manipulate price. Monopolists, being a price setter, could slash their price just to make it tougher for their competitor to survive.

Other strategic methods could include increased advertisement to a level where the lesser and smaller firms will find impossible to compete against. These barriers of entry can prove to be pertinent for the existence of a pure monopoly. The absence of some of these barriers would lead away to a market structure resembling an oligopoly or perhaps even a monopolistic competitive industry if the number of firms was to be large. And in the case where there are no barriers a purely competitive market would appear.

But definitely some barriers are within legal rights. For example a patent protects the product for a number of years and it’s understandable that a monopoly would want to restrict the usage of their research and hard work. Similarly if the price slashes are pushing out competition, they are at the same team encouraging competitors to reduce their costs/price which is great for the consumers and the market in general. Question 3: How does the demand curve faced by a purely monopolistic seller differ from that confronting a purely competitive firm?

Why does it differ? The demand curve of a purely competitive firm is horizontal because it has perfect substitutes and a very large number of firms. The demand curve is perfectly elastic and hence horizontal. On the other a pure monopoly’s demand curve is downward sloping because market demand is not perfectly elastic. The monopolist is the industry and its demand curve is hence the market demand curve. The difference in characteristics such as number of firms, types of product and barriers to entry cause the distinguished demand curve.

Question 9: Explain verbally and graphically how price (rate) regulation may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal? cost) pricing and (b) fair? return (average? total? cost) pricing. What is the “dilemma of regulation”? LO5 Thinking of a firm operating at a point where ATC is still falling. Each small firm would produce a much smaller output at a higher ATC. So efficient and lowest-cost production requires a single seller. This is represented in the graph attached and named Graph 1. The monopoly could charge any price they choose.

One option is to charge the socially optimal price where price equals marginal cost. This is the allocatively efficient output level where all marginal benefits exceed marginal cost. An alternative pricing method is the fair return theory where price is equal to ATC. Under this operation the monopoly is able to break even and continue operation. A fair return is equal to normal profit. The “dilemma of regulation” is caused by these very regulation methods. These regulatory measures which are set to achieve the most efficient allocation of resources in P=MC actually result in the monopoly making a loss.

Similarly the problem with the fair return price is that it doesn’t completely solve the issue of under-allocation. Question 11, LAST WORD: How was De Beers able to control the world price of diamonds even though it produced only 45 percent of the diamonds? What factors ended its monopoly? What is its new strategy for earning economic profit, rather than just normal profit? Despite producing 45% of the diamonds, De Beers was able to control the world price due to the ability to control its own production levels and high market share.

The fact that so many diamond suppliers were coming through and providing alternatives such as synthetic diamonds forced De Beers to invest in advertising and promoting their own diamonds. These were factors simply out of De Beers control. More diamond reserves were being discovered and caused competition. So De Beers was forced to stop its operation as a monopoly and instead as “the diamond supplier of choice”. Problem 1: Suppose a pure monopolist is faced with the demand schedule shown below. Calculate the missing total? revenue and marginal? revenue amounts.

Assuming that MC is $39, determine the profit? maximizing price and profit? maximizing output for this monopolist. Assuming that the ATC is $52. 50, what is the monopolist’s profit? Verify your answer by comparing it to the Total Revenue -Total Cost approach. LO2 Total Revenue from top to bottom, in dollars: 0, 100, 166, 213, 252, 275, 288, 294, 296, 297, 290 Marginal Revenue from top to bottom in dollars: 100, 66, 47, 39, 23, 13, 6, 2, 1, -7 The profit maximizing price is $63 and profit-maximizing output is 4. Monopolist’s profit is TR-TC=252-(4*52. 50)=>252-210=$42.

Monopoly and fair return Essay

Mlb monopoly market structure Essay

Mlb monopoly market structure Essay.

Major League Baseball (“MLB”) is the only American Industry that is a self-regulating monopoly exempt from anti-trust law. In 1922, there was the U. S. Supreme Court Case of Federal Baseball Club v. National League and the judge unanimously decided that the Sherman Antitrust Act was not applicable to MLB and could therefore regulate as a monopoly. Furthermore, this decision was later reaffirmed in 1952 and 1972 in two different U. S. Supreme Court cases. This antitrust exemption has given increased monopolistic power to the MLB organization.

MLB Monopolistic Characteristics Monopoly is defined as “A market structure in which there is only a single seller of a good, service, or resource. In antitrust law, a dominant firm that accounts for a very high percentage of total sales within a particular market. ” The following characteristics that label the MLB as a Monopoly are the following: (a) one unique firm/product (i. e. , no other industry like the MLB and it’s impossible to duplicate); (b) absence of competition (i.

e. , granted from anti-trust laws); (c) profit maximization (i. e. , attendance increasing even as prices increasing); (d).

“Price Makers” (i. e. , control price and possible price discrimination); and (e) impenetrable barriers of entry into market (i. e. , highly unlikely to enter into industry). MLB Controlling Powers Major League Baseball and specifically their team owners can raise ticket and concession prices whenever they want to increase profits. For example, less desirable stadium seats are much lower in price than “good” seats. The MLB also sets prices based on team location.

For example, I know first-hand that prices for the New York Yankees are much higher than those for the Chicago White Sox. In addition to controlling prices, MLB also controls output. They set the season schedule at 162 games with half of those being home games. Since there are limited amounts of homes games owners know that they can keep increasing prices for tickets and concession stands. Conclusion Major League Baseball’s ability to control prices, set extreme difficulty on barriers of entry and to eliminate competition definitely identifies them as a Monopoly market structure.

Furthermore their use of pricing strategies, which include setting ticket prices according to the view of the field, discount group pricing for lower attended weekday games and games against lesser teams, discounts for seniors/students/military, increased prices for suites and luxury boxes, and parking priced depending on location to stadium (i. e. , closer parking to stadium is more expensive). However, even with all of these increasing prices and price controls the MLB continues to set attendance records each and every year.

I personally love Major League Baseball and I’m willing to pay any prices when I want to go to the ballpark and watch a game.

Bibliography/References Haupert, Michael, edit by Robert Whaples. (2007, December 3). The Economic History of Major League Baseball. Retrieved September 26,2011, from EH. Net Encyclopedia Web site: http://eh. net/encyclopedia/article/haupert. mlb McConnell, Campbell R. Economics, 19th Edition. McGraw-Hill Learning Solutions, 2012. p. G-18.

Mlb monopoly market structure Essay