Monopoly Market structure

MONOPOLY

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IntroductionMONO = means “One” +POLY = means “ Sell”

One Seller/ One Producer

• Monopoly is the polar opposite of perfect competition.

• Monopoly is a market structure in which a single firm makes up the entire market. 2

Definition Of Monopoly• According to PROF. CHAMBERLAIN,” Monopoly refers to

the control over supply.”

• According to PROF.ROBERT TRIFFIN ,”Monopoly is a market situation in which the firm is independent of price changes in the product of each and every other firm.”

PROF. CHAMBERLAIN

PROF.ROBERT TRIFFIN 3

Monopoly

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Why Monopolies Arise?

• The fundamental cause of monopoly is the existence of barriers to entry.

• Monopolies exist because of barriers to entry into a market that prevent competition-• Legal barriers• Sociological barriers • Natural barriers

• Barriers to entry have three sources-• Ownership of a key resource.• The government gives a firm the exclusive right to produce some good.• Costs of production make one producer more efficient than a large number of

producers.

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Characteristics of monopoly

Single seller

No close substitutes

Barriers to entry

Non- price competition

Price maker

Downward sloping demand

curve

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Types of Monopolies

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Perfect Monopoly

Imperfect Monopoly

Private Monopoly

Public Monopoly

Simple Monopoly

Discriminating Monopoly

Legal Monopoly

Natural Monopoly

Technological Monopoly

Joint Monopoly

Demerits of monopoly• Consumer options are limited.• Profits do not signal firms to enter the industry. (They can’t get in

because of the barriers to entry.)• There is allocate inefficiency. ( P > MC ) The monopolist does not

produce all units that consumers value more than it costs to make them.

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Monopoly Market Demand Curve

Price

QuantityDemand

Because the monopoly firm is the only seller of a good, the market demand curve for the good is the same as the demand curve for the firm’s product.

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Perfect Competition vs. Monopoly

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Governments Role in Monopoly

• Prevent Excess Price• Regulation of quality of service• Merger Policy• Breaking up a monopoly• Investigation of Abuse of Monopoly Power

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Price Discrimination

• Price discrimination is the ability to charge different prices to different individuals or groups of individuals.

• A price-discriminating monopolist can increase both output and profit.

• It can charge customers with more inelastic demands a higher price.

• It can charge customers with more elastic demands a lower price.

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The Early Bird Gets a Lower Price

• Early Bird Specials—Restaurants charge special, lower prices for early diners.

• Matinees—Theaters charge less for earlier shows.

• Air Fares—Airlines charge less for flyers willing to fly “off peak,” i.e. early morning and late night.

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Case Study

• TATA NANO• Monopoly in the lower economic segment• TATA, the only seller • No close substitutes for Nano in the market• Barriers to entry in the market(capital requirement,

technology, etc.)

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Summary• A monopoly is a firm that is the sole seller in its market.• It faces a downward-sloping demand curve for its product.• A monopoly’s marginal revenue is always below the price of its

good.• Like a competitive firm, a monopoly maximizes profit by

producing the quantity at which marginal cost and marginal revenue are equal.

• Unlike a competitive firm, its price exceeds its marginal revenue, so its price exceeds marginal cost.

• A monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus.

• Monopolists can raise their profits by charging different prices to different buyers based on their willingness to pay.

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Thank You

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