In microeconomic, monopoly is a pivotal area to the study of market structures. With it we can answer or understand such question as why the price of gold rose sharply in few years; why the price of petrol rose dramatically in 2008s-2010s and declined in 2011s; why raising the minimum wage at least RM900 and to increase youth unemployment; why the price of sugar rose in few years; why the cereal rose in few years and others. Through this it can let us know the meaning and reason causing monopoly. Besides that, it also know characteristic of monopoly in deeply.
According to the Cambridge dictionary (second edition) monopoly in micro economic mean is when a company or organization is the only one in an area of business or activity and has complete control of it. Monopoly is a market structure in which there is a single seller and large of buyers and selling products. It have no a high entry and the existence of barrier and have no close substitution to other vendors to enter into the market. Examples of products in monopoly market in our country are water, electricity, local telephone services, sewerage and others. Our home telephone services are Telekom Malaysia (TM Berhad). Obviously, Telekom Malaysia is a monopoly in market.
Another definition is a single seller of a product and 100% of market share (http://www.econ.uiuc.edu/~seppala/econ102/lect13.pdf)
2.0 Reasons why Monopoly Arise
Monopoly is a firm that is the sole seller of a product without close substitutes. Price maker and barriers to entry are also causes monopoly arises. Example of barriers to entry is monopoly resources, government regulation and the production process. Besides that, a firm may own or control the entire supply of a law material required in the production of a commodity and it also has unique technology to produce product.
2.1.1 Monopoly resources
Monopoly resource is a key resource for is owned by a single firm only and a higher price. A firm is also control law material in productivity. For examples: the DeBeers Diamond Company is a firm to control about 80 percent of the diamonds in the world and
2.1.2 Government Regulation
Government grants one person or one firm the exclusive right to produce or sell some good or service. Patents and copyright laws are issued by the government to give firms the exclusive right to produce product for 20 year. A single firm who give the exclusive right can increases the prices of products to gain more profits in company.
2.3 Characteristics of Monopoly
A market structure in which one firm sells a unique product into which entry is blocked in which the single firm has considerable control over product price and in which non-price competition may or may not be found.
NUMBER OF FIRMS: single firm
B. TYPE OF PRODUCT: unique product, no close substitutes
C. CONTROL OVER PRICE: “price makers”
D. EASE OF ENTRY: blocked entry
E. NONPRICE COMPETITION: public relations
2.3.1 Single Firm http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=monopoly,+characteristics
A market structure was controlled by a single seller is called “monopoly”. “Mono” means is single in the part of monopoly. This “mono” term is also the source of such words as monologue — a long speech by a one person in a performance; monolingual-using only one language; monarch-a single ruler; monocle-an eyeglass for one eye; monochrome-a single color and monolith-a single large stone. “Poly” means is to sell in the part of monopoly. So the word “monopoly” means is a single seller.
The single seller is a direct contrast to perfect competition and has a large number of sellers. Perfect competition could be renamed many-poly or multi-poly and to contrast it with monopoly. A single seller is that the monopoly seller IS the market and the market demand for a good IS the demand for the output produced by the monopoly. So it makes monopoly a price marker rather than a price taker.
2.3.2 Barriers to Entry
Definition of barriers to entry is anything are designed which artificially to block or prevent the entry of firms entering a market profitably. Barriers to entry to protect monopoly power of existing firms in an industry. It also to maintain supernormal (monopoly) profits in the long run.
Effects of barriers to entry are making a market less competitive. Some of the key barriers to entry are patents and copyrights, limit pricing, cost advantages, advertising, sunk cost, international trade restrictions and development expenditure.
2.3.3 Price Maker
Single firm produces or supplies good or service and have a monopoly in an entire market that means it holds a large majority of a stock. With having a large majority of a stock and a single firm makes a decision affect the price of an item. As a result, seller has full control over the market price.
There are unique product and no close substitutes for the product.
Patent and copyrights
The rights of the producers have to be protected, e.g. record producers and publishers; they have the right to produce these goods. Infringement law is an offence. Examples Apple Computers, Samsung mobile phone, etc.
Certain climatic conditions favor certain types of agricultural products and not others. It can leads to monopolistic power, for examples Brazil for coffee, Ghana for cocoa, Italy for spaghetti, America for cereals and Malaysia for palm oil and rubber.
In some country, competition is not allowed and this is set by the government through a certain set of regulations.
2.4 Types of monopoly
2.4.1 Legal monopoly
An organization, person, or firm was approved by the government and gave exclusive rights to offer a service or product within a particular geographical area. In here means, firm use money to register like trademarks, patents, copyrights, industrial design to preserve and enhance firm value through intellectual property assets. Macdonald fast food, Music industry, Apple industry, Samsung industry, KFC fast food are some example of legal monopoly.
2.4.2 Natural monopoly
An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. A single firm produces or supplies a good or service in market with lower cost. When production is divided among more firms, each firm produces less and average total cost rises. As a result, a single firm can produce quantity demand in market with the lower cost. The most obvious examples of a natural monopoly are utilities such as water, electricity, and natural gas.
Marginal rput the graph
Features of Perfect Competition
There are many buyers and sellers of a commodity
In this fields, there contains substantial number of sellers and buyers of the commodity. According to the business dictionary in microeconomics means is a product that you can buy or sell like food, grains and metals. Each buyer buys a small quantity of the total amount and the single buyer or seller cannot influence the price and affect a product in the market. As a result, every seller or firm sells its products at the price determined by the quantity demanded or supplied of the commodity in market. Each buyer buys the commodity at the price determined by the market condition.
The product of an industry in which the outputs of different firms are indistinguishable compare with another product. When commodity under perfect competition it is same homogenous, features, benefits, quality, and identical. The homogeneous products are the product where the buyers could not differentiate the products of one seller to another seller. Example of homogeneous product is chicken egg consumer buys from the shops are homogenous and undifferentiated. They are brought the product (chicken) if that they are same quality and choice is made on the basis of price. The following features are same for buyers as same size, quality, taste and ingredient.
In perfect competition firms, consumers and resource owners have perfect knowledge of all relevant prices and costs in market. In here means, no buyers unwilling to pay more a price of the product higher than the prevailing price. Similarly, sellers will not set or charge a price higher or lower than the prevailing price. Advertisement has no scope in this type of market.
Resources are perfect mobility
This means that inputs or resources are free to move in market. Firms can enter or leave the industry in the long run without much difficultly. That is, there are no artificial barriers like copy rights and trademark or natural barriers such as huge capital requirements to entry into and exit from the industry.
Monopolistic competition is a market structure betweeen the exteremes of monopoly and perfect competition. The characteristics of monopoly and monopolistic competition , although almost same to perfect competition . The characteristics of monopolistic is many firms but differentiated product . it can easy entry and exit from the market. There are following features of monopolistic competition.
Features of Monopolistic competition
Differentiated products are products that are similar but not identical. It also bring out differentiated products which are relatively close substitutes for each other. The price productsare produce by the firm cannot be very much different from each other . For example breakfast cereals , milk, bread, detergents and toothpaste on the market today.