This document provides an overview of monopoly, including definitions, types, and the costs and benefits. It defines monopoly as single firm control over supply according to Professor Chamberlain, and as a firm being independent of other firms' prices according to Professor Triffin. True monopolies generally exist in government-controlled markets, while private firms may have considerable market share. A monopoly faces an inelastic demand curve and will set price at a higher level and quantity at a lower level than competitive markets. This results in losses of consumer surplus but gains in producer surplus for the monopolist. Types of monopoly discussed include pure, actual/effective, and natural. Potential advantages include encouraging innovation, though disadvantages include exploitation of consumers and potential inefficiency.
2. Monopoly
• Origins of monopoly:
– Through growth of the firm
– Through amalgamation, merger
or takeover
– Through acquiring patent or license
– Through legal means – Royal charter,
nationalisation, wholly owned plc
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6. DEFINITION OF
MONOPOLY
1) According to PROF. CHAMBERLAIN,” Monopoly
refers to the control over supply.”
PROF. CHAMBERLAIN
PROF.ROBERT TRIFFIN
2) 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.”
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10. EXISTENCE OF MONOPOLY
•True monopolies generally existing government
controlled markets.
. EXAMPLE- INDIAN RAILWAY
•Monopoly in private businessisrare.
•Private firms who have considerable marketshare. .
EXAMPLE- MICROSOFT,INTEL,GOOGLE.
18. Monopoly
Costs / Revenue
MC
£7.00
AC
Monopoly
Profit
AR (D) curve for a
monopolist likely to be
relatively price
inelastic. Output
assumed to be at profit
maximising output
(note caution here – not
all monopolists may
aim
for profit
maximisation!)
This is both the short
run and long run
equilibrium position for
a monopoly
£3.00
Given the barriers to
entry, the monopolist
will be able to exploit
abnormal profits in the
long run as entry to the
market is restricted.
MR
Q1
AR
Output / Sales
19. The higher price and lower
output means that consumer
surplus is reduced, indicated
by the grey shaded area.
Monopoly
Welfare
implications of
monopolies
Costs / Revenue
MC
£7
AC
Loss of consumer
surplus
A look back at competitive for
The price in a the diagram
The monopoly price
perfect competition will reveal
market would be £3 with
that in equilibrium,per will be
would be at Q1.priceunit
output levels £7
equal to the MC of production.
with output levels
We can lookQ2.
lower at therefore at a
comparison of the differences
between face of it,
On theprice and output in a
competitive situation compared
consumers face
to a monopoly.
£3
AR
MR
Q2
Q1
higher prices and
less choice in
monopoly conditions
compared to more
competitive
environments.
Output / Sales
20. Monopoly
Welfare
implications of
monopolies
Costs / Revenue
MC
£7
AC
Gain in producer
surplus
£3
The monopolist
will benefit from
additional
producer
surplus equal to
the grey shaded
rectangle.
AR
MR
Q2
The monopolist will be
affected by a loss of producer
surplus shown by the grey
triangle but……..
Q1
Output / Sales
21. TYPES OF MONOPOLY
• Monopoly:
• Pure monopoly – industry is the firm!
• Actual monopoly – where firm has >25%
market share.
• Natural Monopoly – high fixed costs – gas,
electricity, water, telecommunications,
rail.
TELECOMMUNICATI
ON
RAIL
22. ADVANTAGES OF MONOPOLY
Advantages:
1) May be appropriate if natural monopoly
Encourages R&D.
2) Encourages innovation.
3) Development of some products not likely without some
guarantee of monopoly in production.
4) Economies of scale can be gained – consumer may benefit.
23. DISADVANTAGES OF MONOPOLY
• Disadvantages:
– Exploitation of consumer – higher prices.
– Potential for supply to be limited - less choice.
– Potential for inefficiency –
X-inefficiency – complacency
controls on costs.
over
