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Monopoly, When a firm is the sole supplier of a particular product or service then we say that it is a monopolist.

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Introduction

A. Define Monopoly When does a firm enjoy a dominant position in the market? Why is a firm enjoying a dominant position often associated with monopoly power? B. Why is monopoly power often considered to be detrimental to the interest of consumers? Are there any desirable features associated with monopoly? What government measures can be suitable for controlling monopoly powers. -+ ++++++++++++++++++++++---------- When a firm is the sole supplier of a particular product or service then we say that it is a monopolist. A monopolist is able to prevent the entry of competitors by means of barriers and for whose product or service there is no very close substitute therefore no one can compete against him. An example of this is the Water Services Corporation which is the only supplier of tap water in Malta and it is very difficult for other firms to start offering the same services because a lot of capital in terms of land, labour and machines are needed thus it will not be affordable. ...read more.

Middle

Not all monopolies can enjoy this benefit, for example Malta Post is a monopoly in Malta but if it had to make an high increase in the prices of its services consumers will utilize more their telephones, e-mails and faxes. This means that Malta Post also have substitutes to its services. Therefore not all monopolies have the same power. Monopolies may be against the public interest from different point of views such as since a monopoly firm has an inelastic demand curve (meaning that there is no element of competitiveness) the firm may run inefficient by not operating at minimum average costs. Result of this inefficiency, higher prices will be charged to consumers. Figure 1.2 shows a monopolist's is pricing will above the average costs thus making a supernormal profit. In addition to these problems, monopolies may make the demand curve their own and lack the incentive to introduce new products and varieties. ...read more.

Conclusion

To restrict supernormal profits there may be the need to pose a tax on the monopolist abnormal profits. A liberalization of the market may mean new entrants that compete in the market which will push the monopoly to be more efficient and decrease prices. In Malta this happened in the liberalization of the market once we became European members. For example Benna which produces milk, which was a monopoly now faced competition and is trying to keep up with them with advertising and improvement on the existing products. If a privately owned monopoly is found abusing a lot of its power, it may in certain cases be wise to transfer the company in the hands of the state. Competitive tendering may also reduce monopoly power. For example when the government needs to buy machinery he will issue a tender, not go always from the same company. This will give incentive to the companies to supply quality products at the minimum possible price. Odette Caruana Intermediate Group ...read more.

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