• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Compare and contrast the various methods of dealing with the problem of monopoly.

Extracts from this document...


"Compare and contrast the various methods of dealing with the problem of monopoly." Legally, a working Monopoly is defined as a firm which controls 25% of their market. This immediately raises problems, within the measurement of market share, and the definition of their market. Microsoft is a considerably well known monopoly (as a whole), but is this the case for all areas of business? This would be the initial problem: determining their market. Microsoft spans a vast spectrum of business, however, virtually breaking into distinct main markets - Desktop and Server. It is clear that Microsoft dominate the Desktop market, far outselling any near threats, but is this the case for the server market? I have broken down the server market into two main areas - the Operating System itself, and the web based server. Operating System Percentage Share Linux 31.3% Microsoft Family 24.3% Server Software Percentage Share Apache Foundation 56% IIS (Microsoft) 24% According to the definition, Microsoft is not technically a monopoly in both 'markets'. However, as Microsoft can be accepted to live within a single market (computing), they would have a clear monopoly. Consequentially, problems of dominance begin to occur. It has been discovered that they have been abusing their market power by forcing small firms into signing contracts that require them to purchase their software, should they be using their hardware. ...read more.


who sells the gas to business and domestic users would be separated from Transco who manage the actual gas pipelines. This would lower the barriers to entry (sunk costs) for new firms, as they would not have to 'produce' the gas, nor have it routed to their customer's homes. They can simply purchase it at a wholesale rate, and sell that on with a margin for profit. - Other countries have adopted a different method for regulating monopolies, called 'Rate of return' regulation. This is where companies are taxed a percentage of their profits, however this has similar problems. As there is no price ceiling introduced by this method, the monopolistic firm(s) may choose to simply increase their prices in order to cover the additional tax. This actually solves no problems, and leaves the consumer worse off, as they would be faced with paying higher prices. As the market is dominated by the few single firms, it may leave the consumer no choice but to purchase their goods from those single or sole suppliers at the higher cost. The competition commission also has a strong say on mergers, whether or not they are permitted to go ahead, if there is a threat to the market of a monopoly. An example of this was the Halifax Bank of Scotland and Lloyds TSB merger which resulted in a monopoly for the merged company of the mortgage market - over 30% market share. ...read more.


However, should the market be deregulated - for example, if Thames Water sell the water a wholesale price (such as British Gas does with Gas) then additional firms can afford to enter the market with lower barriers to entry. Finally, there is information asymmetry, where the existing firm has the experience and the knowledge about the industry that allows them to be more productive and drive down their costs. If the information is not known to the new entrants, this can be a sunk cost for them, acting as yet another deterrent for entering the market. However, having discussed the problems that monopolies may bring, the reverse can be true. Monopolies can be beneficial to a market because they achieve greater economies of scale, and tend to have a lower market price than smaller firms - as they are more able to pass on cost reduction. A typical example of this would be the comparison of a monopolistic firm such as Tesco against Jay's News. A typical product, one pint of milk will cost around 49 pence in a small firms shop, or 26 pence in Tesco. At a 53% saving, it seems clear that monopolies can benefit the greater economy. Sources: NTL Price Capping: http://www.ofcom.org.uk/static/archive/oftel/ind_info/broadcasting/ntlprice/section2.htm Page 4 of 4 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Budget 2004-05 and Economic Analysis of Pakistan

    * Pakistan has pre-paid a part of its expensive debt; the pre-payment schedule is spread over a four year period. * The build-up in foreign exchange reserves helped Pakistan in its debt servicing; in FY04, the actual amount paid was $4.0 billion and the rolled over amount $1.1 billion.

  2. Pakistan is in the grip of a serious energy crisis that is affecting all ...

    under-utilization of existing generating capacity.: The availability of hydel electricity naturally goes down in winter months by 60 per cent from 6,400 MW to about 2,500 MW, but unfortunately, the actual generation of electricity from thermal plants has also declined by 4,000 MW against the installed capacity of 13,000 MW,

  1. Unemployment: Where is it Going?

    These statistics indicate the severity of the unemployment problem. The ghost of unemployment is one of the major problems that Egypt is trying to find a solution to. Fatemah Farag, a journalist for Al-Ahram Weekly, said that the second meeting of the new cabinet on the seventh of November 1999,

  2. Economics - House Prices.

    Supply Factors This affects the price of a house because if there is little supply and the demand stays the same then less people can buy the good and so those people would be willing to pay more for the good and therefore the price would rise.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work