Using 'Real World' examples, illustrate both some of the potential benefits of monopolies and explain how monopoly firms may be able to engage in price discrimination practices.

A major advantage of a monopolistic firm is that it can use price discrimination as a tool in gaining more money. This is where a firm can make the consumer pay for a different price for the exact same service. A good example of this is through British telecom and how it is cheaper to ring during off peak tariffs rather that during the day when the cost of a phone call is substantially higher than that of a phone call during the evening. However, for price discrimination to happen there must be a number of factors occurring to make price discrimination work for the company. First, the company must know its customers and know that they have different demands to that of other people. This may be the travel of commuters into the city for work. The company may see them as a priority customer as they will use there service everyday during the mornings. The travel company may decide that it could price discriminate against the commuters by increasing the price during the mornings. The commuters will still pay the higher prices because it is imperative that they arrive on time for work. This enables the company to segregate its customers through cheaper prices during the afternoon period rather than the busy morning period. For all of this to happen the company must be of a monopolistic nature.

An example of a monopolistic company or group of companies is OPEC. This is the Organisation of Petroleum Exporting Countries. These are a group of producers that act as a unit to control the supply t the market of petroleum based substances (e.g. petrol, diesel, etc). This is known a monopolistic cartel. In this cartel of companies, there are big multinational names such as Esso, Shell, and BP to name but a few. They can influence the supply of petroleum and distinguish a price between themselves that would not spark off a price war competition. A price war is when companies begin to lower there prices in an effort to win a larger market share than there competitors. Although collectively OPEC is a monopolistic cartel, the have to work like an oligopolistic group of companies using other methods other than price to entice customers into their stores.  This is because if the members of OPEC decided to engage in a price war. It would benefit no one other than the consumer with lower prices. This is because they would be driving down the price without actually gaining any more market share than what the had before. This form of competition between the petrol companies would be called non price competitition where they would use other promotional packages to gain a bigger market share. An example of this would be the ‘premier points’ scheme between Argos and BP. This gained money off vouchers for products of both Argos and BP.

There is a growing amount in monopolistic competitition where it is possible that a company who produces a product can be rivalled by another company producing a product of the same nature but with different characteristics, (or as an alternative). An example of this is the competition of Microsoft and Apple Macintosh. Microsoft have revolutionised the computer software and hardware industry over the past two decades. It now has over 90% of all computers in the USA using a Microsoft Windows based program. This significantly suggests that it is indeed a monopolistic firm. By doing this it is allowed to charge premium prices on the market for its products such as Microsoft Office. It now has the majority of other software such as games and other programs having to be compatible to run with Microsoft Windows. The world has seen many monopolies before, mostly on national or local level, but it is probably safe to say that Microsoft has easily become the biggest commercial monopoly because of its worldwide dominance.

Overall, many monopolies have used the advantage of price discrimination against the consumer. However they can only exploit the price through knowing there customers, e.g. Virgin trains, Rail track, etc. There is an increasing rate in monopolistic competition that could increase the competition through the emergence of alternative forms of product.

Word Count = 1012

References

1. I Worthington & C. Britton, The Business Environment, 3rd Edition, Prentice Hall, 2000
2. http://www.geocities.com/free2subj/monopoly.html.