MONOPOLY
The characteristic of Monopoly
A monopoly is an industry in which there is only one supplier of a product with no close substitutes and in which barriers to entry prevent the entry of other firm, that is, other firms cannot enter the market easily and provide the good.
[1] A monopoly in most cases is created due to legal barriers, and the law grants the inventor the exclusive right to produce and sell a product for a certain period, mostly seventeen years, as it is the case in United States. The terms of licensing restrictions often limits those allowed to provide a good or service in a certain geographic region. In some cases, the economies of scale exist so that there is a tendency toward a natural monopoly, that is, one firm can provide the good most efficiently.
How Monopoly Arises
Barriers to entry are the hurdles which prevents new firms from entering an industry making the already existing firm a monopoly. The barriers may be legal or natural causes. The legal barriers create legal monopolies and such barriers include: public franchise, government license or even patent. The public franchise involves granting legal rights that allow only one firm the liberty to produce the product.
The government license involves requiring a firm to have a certificate in order to work in an occupation. The patent on the other hand involves granting an exclusive right to the inventor of a product or service.1 natural barriers to enter a market creates a natural monopoly, which can occur when economies of scale allow one firm to supply the entire market at a lower cost than would be possible if probably two or more firms were in the industry.
Regulation of monopoly
The government may wish to regulate monopolies to protect the interests of consumers. The government can do this through price capping, yardstick competition or preventing the growth of the monopoly power. When using the price capping technique, the government is able to limit the price increases using the formula RPI-X. Regulation can also be done by regulating the quality of service of any monopoly to ensure they do not offer sub-standard services.
The governments also have policy to investigate mergers which could create the power of any monopoly. The governments can thus decide to allow or block the merger. Governments can also decide to break up monopolies which could have become so powerful. The monopoly may also be investigated on the issue of abuse of monopoly power and if found guilty, it is shut down.
Examples of monopoly
Some of the examples include Luxottica, a firm dealing with glasses, also Monsanto which is known for promoting the use of genetically modified organisms, also the American telephone and telegraph(in the past) and the US steel(also in the past).
OLIGOPOLY
An oligopoly is a market form in which an industry or rather a market is dominated by a small number of sellers. Oligopolies are known to cause various forms of collusions that reduce competition and ultimately lead to higher prices for consumers.[2]
The Characteristic of Oligopoly
The major characteristic of oligopoly is that it is an industry which is dominated by small number of large firms, whereby the firms sells either identical or differentiated products and the industry has significant barriers to entry.
Examples of Oligopoly
Some common industries overshadowed by oligopolies include: cable television services, entertainment industries, airline industry, mass media, pharmaceuticals, oil and gas, Smart Phones and computer operating systems, aluminum and steel among others.
Perfect competition
This is the situation prevailing in a market whereby sellers and buyers are so many and well informed that all the elements of monopoly are not present and that the price of a certain commodity in a market is beyond the buyers’/sellers’ control.[3]
Production decision of a firm
The firm considers how much labor it should employ in its venture. Also if the firm wants to increase production, it considers build more plants. So as to take any decision, the consumer constraints, input choices and production technology factors are considered and then a decision can be made to maximize production.
Why farmers never seem to Exit the industry yet they complain
The reason they complain is due to poor payments they receive after selling their products. The poor payments are caused by the stiff competition experienced in the market. Basically, the farmers cannot leave the market since they are dependent on it. If they leave the market, they will have no other place to get their daily bread, thus they tend to stay.
Economic inequality
Economic inequality refers to the way metrics of economy are distributed among individuals in a group, among groups in a population or even among countries. It is sometimes referred to as the gap between the poor and the rich or even the wealth inequality.
Sources of economic inequality
Research shows that economic inequality is caused by some sources which include: the globalization hypothesis which means that low skilled individuals tend to lose grounds in the face of competition giving chances to the skilled guys to accumulate wealth, whereby those unskilled remains poor. Income distribution thus favors brains rather than brawn.
[4] Policies, politics and racism could be seen as a reason whereby some policies are made to favor some races or even some politicians leaving some regions or races or even individuals poor. The people who are well off economic wise or even the big markets are located in some selected concentrated regions especially towns leaving those in rural areas quite poor, thus wealth rend to accumulate in some selected regions only.
Difference between poverty and an unequal income distribution
The unequal income distribution affects the whole area like a county and basically, poverty can be associated with those areas and that means that the area has people making little income and people making high income at the same time, whereas poverty refers to the total income and asset of a group, from a single person or family to a country
Bibliography
Braverman, Labor and monopoly capital: The degradation of work in the twentieth century (NYU Press, 1998).
Bulow, Geanakoplos and Klemperer, Multimarket oligopoly: Strategic substitutes and complements. The Journal of Political Economy (1985), 488-511.
Robinson, what is perfect competition? The Quarterly Journal of Economics (1934), 104-120.
[1] Braverman, Labor and monopoly capital: The degradation of work in the twentieth century (NYU Press, 1998).
[2] Bulow, Geanakoplos and Klemperer, Multimarket oligopoly: Strategic substitutes and complements. The Journal of Political Economy (1985), 488-511.
[3] Robinson, what is perfect competition? The Quarterly Journal of Economics (1934), 104-120.
[4] Robinson, what is perfect competition? The Quarterly Journal of Economics (1934), 104-120.