2.2 Monopoly Flashcards
What is a monopoly?
A situation where there is only one firm selling in the market.
How do firms become a monopoly?
Merger and Takeover, Statutory Monopoly, Internal expansion, Branding, Cost Barriers.
What is merger and takeover?
When two firms come together to form one and can take advantage of raising prices and lowering quality of product.
What is statutory monopoly?
This occurs when key industries are given monopoly status by the government. For example water companies. The government created regional monopolies for the water industry as it would be too difficult to have a number of firms providing water to the same area.
What is internal expansion?
If a firm build more factories or more shops, it will be able to generate more sales and therefore in the long run increase its market share.
What is branding?
For example heinz has created a brand which would mean even if the price went up it is most likely that people will still buy from them.
What are cost barriers?
Large firms may gain internal economies of scale, which means their average costs are low. This enables them to keep prices below the price at which small firms could enter the market so the existing firm keeps its monopoly power.
