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

Economics - Monopolists

Extracts from this document...


ECONOMICS 1 ESSAY MONOPOLISTS A pure monopolist is a single supplier of a good or service for which there is no close substitute. In this case the demand curve is fairly inelastic. Examples of monopolies prior to privatisation are British gas, British telecom and British rail. One firm has complete control over the supply of a good or service meaning one firm constitutes the entire industry. A small business or a company selling on a nationwide basis can have a monopoly. Few monopolists are likely to face no competition at all. In reality it is unusual for a firm to have complete control in an industry, as government often intervene to prevent such control. In the UK The Competition Commission states a monopoly exists when one firm has 25% of the market for a product. The more narrowly defined the product is the more number of monopolies there are. A seller prefers to have a monopoly than to have competition. For a firm to obtain a monopoly there must be barriers to entry that enable firms to receive monopoly profits in the long run. Barriers to entry are difficulties facing potential new competitors in an industry. For monopoly power to continue to exist in the long run there has to be a way the market is closed to entry. ...read more.


There are also artificial barriers which can be created through things like advertising and branding. The development of strong brand names is common. In the consumers mind a dominant brand name is associated with a specific firms product. Some examples are Tampax, Hoover and Durex. The brand image is taken to represent high quality. This acts as a barrier to entry as it is difficult and costly to attract consumers away from the strong brand names. The dominant firm may introduce price cuts to deter potential competition. Existing large monopolists may have budgets for advertising which potential new entrants to a market find it difficult to establish. The newcomer faces huge costs in coming up against such firms. Also due to economies of scale sometimes it's not profitable for more than one firm to exist in a market. A situation of natural monopoly may arise when economies of scale exist, costs increase less than proportionately to the increase in output. The long run average cost curve continues to fall as output increases making it very difficult for newcomers to compete with price. Within a natural monopoly the firm that is established is able to have very low average cost per unit. If a firm charges the price, which reflects the low average cost per unit, then no rival firm, can threaten its position. ...read more.


The marginal revenue curve lies below the average revenue curve on a diagram to reflect the ability to price discriminate. The monopolist has the power to determine either the level of output to be sold or the price at which the product will be sold. Having decided upon a price for sale the monopolist can only sell whatever the market demand is at that price, as the monopolist faces a normal downward sloping demand curve. Only price or output can be determined not both at the same time, to sell more of a given product the monopolist would have to cut the price. In this market structure the producer has more power than the consumer. Monopolists act against the interests of the public by restricting output or charging high prices. Comparing monopolies to the market structure of perfect competition, suggests that monopolies lead to a decrease in consumer welfare. The desire to maximise profits would mean prices are set far above average costs. Profit maximisation occurs where marginal cost is equal to marginal revenue. Monopolies can be innovative and use excess profit to develop new and better products. If the monopolists did passed on to the consumer the benefits of economies of scale, by charging lower prices then it may be more beneficial than a market comprised of lots of small firms. There must be a balance of profit maximisation and consumer welfare. ...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 Markets & Managing the Economy 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 Markets & Managing the Economy essays

  1. Marked by a teacher

    Supermarkets in UK - An oligopily

    5 star(s)

    Waitrose was the only major supermarket to come out of this accusation relatively unscathed. Tesco has been subject to several claims of apparently out-of-date food being 'back-labeled' to appear to still be in date, poor caf� hygiene and a staff member contracting legionnaires' disease in the Wrexham store.

  2. Discuss whether the privatisation of British Rail has been successful. Evaluate whether the new ...

    Privatisation occurred in 1996 and in the year before privatisation there were 989 rail accidents. In the year after (1996/7) there were 1,285. This certainly does not seem a good record. The figure has come down to 1,164 in 1998/9 but this is still above the number before privatisation.

  1. What is a Monopoly?

    Economies of scale provide gains in welfare for both producers and consumers. Monopolies and International Competitiveness One argument in support of businesses with monopoly power is that the British economy needs multinational companies operating on a scale large enough to compete in global markets.

  2. In economics we refer to these two acts as tax evasion and tax avoidance. ...

    This shift is equivalent to the full amount of the sales tax(i.e. Lm 1). If we consider quantity supplied 13 units ( point A), we can see that before the tax was introduced would ask for Lm 4 per unit in order to sell this given quantity.

  1. Evaluate the role played by barriers to entry in the long run

    of research and development is carried out to try and gain the competitive edge in the market. 4. Monopoly - In this market, a specific company or business has majority market share thus being able to determine prices without much of a change to their demand.

  2. 'Although corporate pricing decisions are influenced by many different factors, fundamentally prices will reflect ...

    In other words, competitors are faced with barriers to entry. * Patents A patent is issued to an inventor to protect him or her from having the invention copied for a period of years. At the end of the patent period the patented invention is no longer private property but public property which anyone can copy or reproduce.

  1. what is economics

    satisfy their demand * However, consumers pay the price offered, and no the price that they're willing to pay, and so potentially save some money. * This is known as consumer surplus * For the cinema trip scenario, the consumer would be willing to pay �4 for the first cinema

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    This graph can be seen below, Figure 9. The entire data are for Tesco's financial years, which run for 52 or 53 week periods to late February. Up to the 27 February 2007 period end, the numbers include non-UK and Ireland results for the calendar year ended on 31 December 2006 in the accounting year.

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