Mod 4 Monopoly Flashcards
Examples of a monopoly?
BHP
Electricity company
The only doctor in a country town
Australia post
4 More features of the monopolist?
Has the entire market to itself
Can choose price OR quantity of output (but not both)
Is in compete contrast to perfect competition (who can only choose output, not price)
The monopolists power stems from barriers to entry, as it is expensive/difficult to get into
Barriers to entry and natural monopolies explained?
These barriers contribute to the existence of monopolies…
A block to potential competitors by sheer size, ownership of resources, technology set up, and economies of scale. Some industries can only be successful with efficient low cost production. Not open to everyone.
What is a monopoly?
A monopoly exists when there is only one supplier of a good or service.
There are no close substitutes
Monopoly defined further?
Pure monopolies are rare
May be desirable or undesirable
High barriers to entry explain monopolies
Main barriers to entry?
Economies of scale- LRAC slopes down over a large range of out put
- small firms can’t compete
- high financial obstacles to entry
Examples- motor vehicle industry
Steel industry, banking
Natural monopoly exists when?
LRAC curve slopes downward over the whole range of market demand
One large firm producers cheaper than several smaller firms
They are public utilities or government regulated
Ex: gas, electricity, some airports,
Ownership of raw materials - control of a resource ie: BHP, film stars
More barriers to entry?
Own a resource
Govt granted monopolies - they provide a patent, copyright or licensing laws,
They give public controls over socially dangerous products like liquor, gambling
Ration a scarce resource - airwaves, fishing stocks
BY reducing number of sellers.
Acts of parliament may restrict competition like post, telephone, gas, rail services
There have been recent moves towards privatisation and de- regulation
2 firms may have an agreement to merge, or not to compete - stops others from entering (govt may restrict this though)
Does a monopolist likely to initiate improvementS?
Has the money and the incentive, but not competitive pressure to do so.
