The paper "Characteristics of Monopolistic and Competitive Markets" is a perfect example of marketing coursework. Monopolies refer to a market situation whereby a particular individual or enterprise is the only seller or supplier of a particular commodity. The basic characteristic of this monopoly is lack of trade competition in the supply of both goods and services and consequently lack of a viable substitute commodity. Indeed the term monopoly refers to the action of an enterprise to achieve the ability to exclude competitors or raise prices of particular goods and services. In microeconomics, a monopoly can be termed as a single seller.
In economics, a business entity that possesses significant market share and power, to be exact, market power- to increase commodity prices. Although most of the monopolistic business entities are large business and firms, the side is not a key characteristic of a monopoly. Smaller and medium businesses can still enjoy monopolistic power to determine market prices in lesser market industry. Monopolies can either be established by governments through legislation or, naturally through market integration. Although most government establishment restricts the creation of monopolies, it is not illegal for a business entity to hold a monopoly of market-dominant position.
A legal or government-created monopoly is sanctioned by the government, mostly in the provision of key services to the economy, or in giving incentives to a risky investment venture through granting of copyrights, patents, and trademarks. Other services could be offered by the state itself, and thus government monopoly. Characteristics of Monopoly Monopoly basically refers to a market situation with a single seller and a large number of sellers with the following characteristics: Single seller: in monopoly economy, there is only a single seller that produces all the output of both goods and services.
This means that that the entire market is served by the single business entity, and thus for practical reasons, the company enterprise is equivalent to the business industry. Large numbers of firms Profit optimizer: Monopoly market allows the single or fewer sellers to maximize on their net profit returns Discrimination of price: a monopolist is at liberty to alter both the quantity and price of their commodities. In a very elastic market, a monopolist sells larger quantities at a lower price and sells lesser quantities at a higher price during the lower elastic market. Price decider: the business enterprise in a monopoly economy is responsible for making a decision on the price of commodities regardless of the market forces. Increased barriers to market entry: in a monopolistic market set up, other business competitions find it hard to penetrate the market which is heavily owned by the single firm Causes of a monopoly market power Monopoly market emanates from barriers to entry of the entire market by ac competitor. Such barriers can be grouped as; legal, economic, and deliberate. Economic barriers These include economies of scale, cost disadvantages, technological supremacy and capital requirements. Economies of scale: this refers to monopolies characterized reduced costs for a significantly large product range.
Reduced costs combined with high initial costs offer monopolies an edge over potential competitors. They are often in a capacity to lower prices to less than the operating cost of a new market entrant enterprise thus hindering them from venturing into the market. In addition, the volume of the industry with respect to the minimum efficient scale may prohibit the number of potential competitor companies within the industry.
This equally means that such companies that operate in a less minimum efficient scale will eventually suffer more operating cost relative to practical commodity costs. Technological supremacy: a monopolist company is practically in a better position to produce goods cheaply. They can be ably to acquire, use and integrate up-to-date technology in the production of commodities better than new entrants who often may lack capacity and capital to acquire this new and advanced efficient technology. Capital ingredients: Capital investments that require huge capital to establish, both in terms of sunk costs, and increased research and development, often favor large and well-financed enterprises at the expense of small upcoming firms.
This naturally establishes a monopoly to the advantage of such big corporate. Lack of substitute goods: Monopolists flourish in markets which lack competitor commodities. The absence of these substitutes leads to inelastic demand enabling the monopolists to reap optimum profits Network externalities: the use of a commodity is dependent on the number of people using the product at that particular time.
A good example is the supremacy of Microsoft Corporation in the provision of PCs software. Control of vital natural resources: the main source of monopoly environment is the ability of some companies to control the main resources responsible for the production of the final market commodity.
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S, A. (2002). Monopoly" (paperback). Microeconomics: Principles and Policy. Thomson South-Western, p. 212.