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The danger of monopolies to the economy
The danger of monopolies to the economy
Monopolistic affects on the economy
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A monopoly is a company that is the sole provider of a product or service. When there is a monopoly on a product, it means that there is not viable substitutes or competitors for the product or service that the company provides, and barriers that keep other companies from entering the market. Because the monopoly is the only company providing a product, they control price, supply, and other significant details of a product. Monopolies that are seen in a negative light are raising the price of products to higher than what they are worth and consequently being unfair towards their consumers by giving them a bad deal on a product (Cox). Of course, not all monopolies are bad for consumers. Monopolies are usually thought to be evil corporations …show more content…
An oligopoly usually consists of two to ten companies that are selling products with little to no differentiation. While the companies do hold some control over the price of the product they are selling, it is mostly dependent of the pricing of the competitors’ product. The companies in an oligopoly rely heavily on advertising and marketing their products to appeal to consumers. This is because all the companies in the oligopoly have to try to stay a step ahead of their competitors in order to appeal to consumers (S, S.). An example of an oligopoly is the cell phone industry. Verizon, AT&T, Sprint, and T-Mobile are the four dominating competitors in the market. These four companies are the only ones offering a reliable plan, at a (not so) decent price. They are constantly advertising, it seems as if every other commercial and ad you see is for one cell phone company or another, for one outrageously expensive plan or another. This goes to show that just because there is some semblance of competition between companies in a market, does not mean that consumers will be receiving a fair price on a product or …show more content…
If the demand for a product is low, then a customer will not be willing to pay a higher price, but if a product is in high demand, then a customer will be more willing to pay a higher price. Other factors may include location, age, and economic status. An example of price discrimination is the price of textbooks. Due to the copyright protection laws, the cost of textbooks in the United States are much higher than in other countries (Price). While price discrimination can be a bad thing, that is not always the case. An example of price discrimination that benefits consumers is age discounts. Often places like movie theaters and restaurants will have discounted items for customers like senior citizens or children. Another example is occupational discounts, such as military discount (Price). Price discrimination is commonly used in competitive markets to benefit businesses and consumers, but monopolies use it to benefit only themselves at a cost to
When the word monopoly is spoken most immediately think of the board game made by Parker Brothers in which each player attempts to purchase all of the property and utilities that are available on the board and drive other players into bankruptcy. Clearly the association between the board game and the definition of the term are literal. The term monopoly is defined as "exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices" (Dictionary.com, 2008). Monopolies were quite common in the early days when businesses had no guidelines whatsoever. When the U.S. Supreme Court stepped into break up the Standard Oil business in the late 1800’s and enacted the Sherman Antitrust Act of 1890 (Wikipedia 2001), it set forth precedent for many cases to be brought up against it for years to come.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Many companies and individuals have committed monopolies before they were considered illegal and afterwards. A monopoly is when one person has complete control over a company and makes close to 100% of the profits. Since The Sherman Antitrust Act passed on April 8, 1890, “combination in the form of trust and otherwise, conspiracy in restraint of trade;” monopolizing an industry became outlawed. In simple terms the act prohibited any forms of monopoly in business and marketing fields. Monopolies committed before the Act, at the time, legal, but unethical, some famously known marketers like John D. Rockefeller became extremely wealthy. While others took full control of corporations after The Sherman Antitrust Act caused a firm like Microsoft
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
There is much controversy about what a ‘good’ monopoly is and what a ‘bad’ monopoly is. Monopolies can have a positive impact on the market. One example is the history of telecommunications. The American Telephone and Telegraph “consolidate(d) the industry by buying up all the small operators and creating a single network—a natural monopoly” (Taplin). It became easier and more convenient for consumers to communicate. This is an example of a ‘good’ monopoly. Louis Brandeis, counselor of President Woodrow Wilson, agreed. He said it makes sense for one or a few companies to own‘“natural” monopolies, like telephone, water and power companies and railroads” (Taplin). The keyword here: natural monopolies. Natural monopolies are different from most of the monopolies in the market place today. A natural monopoly “refers to the cost structure of a firm” (lpx-group). A monopoly is “associated with market power and market share in particular” (lpx-group). Natural monopolies make
A monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. A monopoly sells a good for which there is no close substitute. The absence of substitutes makes the demand for the good relatively inelastic thereby enabling monopolies to extract positive profits. It is this monopolizing of drug and process patents that has consumer advocates up in arms. The granting of exclusive rights to pharmacuetical companies over clinical a...
Price discrimination is a significant and influential practice on the market in the modern economic world. It aids in a firm's profit maximization scheme, it allows certain consumers with more scarce resources the opportunity to purchase goods or services that would otherwise be usable, and it aids firms in balancing what is and what is not sold. Price discrimination is an effective means by which a firm can sell a higher quantity of goods, make a higher profit margin on the goods it sells, and builds a broader consumer base due to differing price elasticity of demand for given goods and services. Price discrimination ultimately equalizes price and value for both the consumer and the firm, creating a more ideal situation for both entities in terms of preference and opportunity cost.
The idea of a single entity dominating a product or service in an industry is a controversial topic for Canadians. A monopoly is, “a single company or group who owns all or nearly all of the market for a given type of product or service. By definition, a monopoly is characterized by an absence of competition, which often results in high prices and inferior products” ("Monopoly Definition” Investopedia). The word “monopoly” derives from the Latin term, “mono” meaning single and “poly,” for seller (Benjamin, “Different Types of Monopoly Practices”). To many, monopolies generate “efficiency, are customer-orientated, innovative, high quality and low cost” (MORGAN, "Canada 's Monopoly Health-care System”). One may argue against this statement. There
•Monopoly: This is when a company that has no competition in its industry. It decreases output to drive prices up and therefore rise to its own profits. By doing so, it produces less than the socially optimal output level and manufactures at a substantial high cost than some other competitive firms. For example companies that are perceived as monopoly companies are the rail way and postal companies e.g. Scot rail and fed-ex. Companies like Scot rail use this to its advantage because a lot of the train go to the Glasgow and ...
In the short run, oligopolies are. able to earn abnormal profits, but in the long run as well they are. able to sustain abnormal profits due to the barriers to entry and exit. Then the s The barriers act as a strong deterrent to firms that want to come in. the industry and " eat into" the abnormal profits and then exit the market.
The. An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share. In a Monopoly, there is one firm that controls the market, and there are no similar products being sold by other companies. Advertising is therefore used to encourage people to buy more of their product. In a monopoly there is a downward sloping demand curve, the reason for this is that a firm must lower the price to sell an extra unit of their product.
With there being several firms for 3 of the markets, the consumer benefits as they can find the cheapest producer, resulting in the producer being at a disadvantage as they could loose business. In a perfect competition market, the firm is unable to choose the price whereas in an oligopoly the price is chosen by the firm this is beneficial for the producer as it increases their profit margins. However, this is harmful for consumers as they will have to pay the higher prices.
Well the bottom line is that a monopoly is firm that sells almost all the goods or services in a select market. Therefore, without regulations, a company would be able to manipulate the price of their products, because of a lack of competition (Principle of Microeconomics, 2016). Furthermore, if a single company controls the entire market, then there are numerous barriers to entry that discourage competition from entering into it. To truly understand the hold a monopoly firm has on the market; compare the demand curves between a Perfect Competitor and Monopolist firm in Figure
It is important to distinguish between competition and monopoly before describing advantages and disadvantages of both. Many monopolies are government owned. This means that the incentive to strive for more profit, better conditions etc. is gone. This is due to the fact that, if there is a loss, the government will cover it, and government owned companies seldom strive to achieve maximum profits. A lot of the characteristics are also seen in privately owned monopolizing firms. When they become so big, that competition is practically gone, the incentive to make even more profits, and being innovative diminishes.
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.