Characteristics of Monopoly - Term Paper Example

? Monopoly Table of Contents Table of Contents 2 Introduction 3 Body 3 Characteristics of Monopoly 3 Merits of monopoly 4 Demerits of Monopoly 6 Conclusion 8 References 9 Introduction Monopoly is the Greek term meaning alone or single. This term exists when a specific enterprise is the only sole provider of a particular commodity. In a market setting, monopolies a thus characterized by a lack of economic competition (McKenzie& Lee, 2008). This is when, in a company’s production of goods and services, they face little if any viable substitute goods. A monopoly is a single seller in an economic setting whereby the company rises to gain monopoly with accruing the power to exclude competitors or raise prices of their commodities hence the term monopolize (Lele, 2007). The company has unlimited market power even influencing how they charge higher prices. This may be confused with the ability to possess or own big businesses. Size is not all the characteristics of a monopoly in an enterprise, because a small business venture may also possess ability control market more than a big and existing companies. Body Characteristics of Monopoly An enterprise that enjoys monopoly exhibits a number of characteristics in the market or economy of operation. First, it maximizes profits. This is a value through the sales of the company’s services or goods to its consumers. For example in most of the third world countries and also in developing economies, most of the services or goods which have overall public consumption give way for the providing company to be a profit maximize (Lele, 2007). If it is only providing the electrical services for example, maximizing its profits is an easy feet to reach. This comes simply because there is or if any little competition from any other providing company. A company enjoying monopoly carries the tag of a price maker. Through this, the interpretation is that the company has the veto powers to decide and price goods or products, which it sells. For example, if the quantity is well in place for adequate market supply, the company therefore goes ahead and demands the price they desire as a firm (McKenzie& Lee, 2008). The characteristic of an institution enjoying monopoly is that one which creates high barriers to entry. This proposition aims at making sure that other sellers are unable to enter the market of the monopoly. For example, a company that may afford to offer promotional campaigns or motivating enticement to a publicly consumed good or service sets the standards of its customer preferences upon its competitors. In a situation where a communication company provides free minutes at a given point to its customer, a newly established competitor may find this a high level of barrier to counter given the minimal number of its customers in the same market. Being a single seller is yet another characteristic of a company enjoying monopoly in a given economy. A single seller dictates the supplies and influences the market trend with minimal interruptions (Kennedy, Waltzer & Atlantic City Historical Museum, 2004). This kind of the market brings out the existence of one seller of the good and it produces all the output. This means the whole market or region sings the tune or consumes the products of a single company. Finally, price discrimination is another characteristic that accompanies a company practicing monopoly. A monopolist does not need any outsider’s mind when choosing or changing the price of goods or service that it provides. For example, a company can sell more quantities at a relatively lower price than the competitors can even though there is minimal competition. The same case can apply when the company may decide to sell less quantities and charge high prices in a less elastic market. Merits of monopoly Certain monopolies exhibit various advantages for consumers, and social welfare. One of the advantages is that these companies are the investment in research and development. It is a common understanding that the monopolies make supernatural profits (Lugard, Lugard & Plompen, 2005). The company can embark on the process of using these profits to fund its own initiatives and investments, which gear towards strengthening its monopoly. As a result, a successful research may be put in effect to improve on the company’s products and eventually lower costs in the long term. The advantage of research and development profits much the companies that deal with telecommunication, airline manufactures, and pharmaceutical institutions. For example, take the case of drug development and production, without the monopoly that these industries enjoy, there would be less advancement in drugs research and production (Lugard, Lugard & Plompen, 2005). The monopoly gives these companies the advantage of research hence the companies may find ways to improve their products. Secondly, there is the advantage of economies of scale. The birth of this is due to an increased output, which definitely round up to a decrease in average costs of production. The company can as well extend the economies of scale to its consumers as well through lowering the prices of its products or services in the economy (Lele, 2007). The most appropriate companies befitting this value are companies, which have high fixed costs, such as those operating as tap water and steel production. The most outstanding and opportune monopoly is the situation where the company or industry service provision would not require any other industry to provide (McKenzie& Lee, 2008). For example, the energy or industry that builds and maintains infrastructure in order to deliver the flow of energy to customers would see the services become bogus if any other company was getting into the chain and compete for the same service provision. No one would have a problem with services coming from different industries for example those providing electricity, but most of the consumers would prefer these services extended by one company to track its quality performance (Lugard, Lugard & Plompen, 2005). The other area is when there is a very limited demand or limited supply of resources in terms of raw materials or human resources. This mandate only one type of company to be operated since an incorporation of another industry would make it impossible to survive the market trend. Demerits of Monopoly In countries, which we have, industries enjoying monopolies, the companies have continued in operating in the same trend in the name of satisfying customers but the reality is opposite. Such companies have reduced the qualities of products and services, have also affected the satisfaction level of their customers, and have increased the prices of goods and services hence disadvantaging the employees in the companies that have a monopoly. Monopoly causes a reduction of customer’s satisfaction level. This is a process, which starts from the point when the economy seems to allow one industry to provide a certain type of service or product. This turn of events leaves customers with no choices to rely or look upon hence there is a kind of coercion to buy the same industry product when the need arises (Lele, 2007). For example, a case study in Saudi Arabia where the country has only one airline to travel and traverse within the country, from city to city. As a result, the customers in Saudi Arabia have no alternative but find themselves travelling with the same airline even with its disadvantages (Dwivedi, 2006). It ought to come into reality that a company that enjoys monopoly power tends to lag in quality service provision and this result into provision of poor services or products. In this case, of Saudi Arabia, the trend has been non-compliance with time for these airlines hence this becomes an example of bad services borne out of an industry establishing monopoly in a given economy. The lack of choice to compare with for customers reduces the satisfaction level of customers for they have to deal with one type of good or service that comes from the industry (Kumagai, 2013). Moreover, may lead to increased prices for services or products. Every business venture aims at accruing the maximum profits that may come with its investment. This may prompt an industry enjoying monopoly to do so. A study has indicated that successful monopolies earn extra-large profits through their pricing, which is relatively high. The disadvantage to this move is it hurts the consumers directly. The case of Saudi Arabia in 2002, when only one telecommunication industry was in operation, Saudi Telecom Company. This company resulted in exaggerating the calling rates upon the local network hence the customers had to deal with such business hurdles. Such gluttonous attempts come with the aim of the company intending to maximize their profits (Kumagai, 2013). On another level, the company with monopoly may increase prices since it has faced enslavement from the resource production area or company for that matter. For example, if the provider of raw materials rises his prices, the company would subsequently have to raise its prices since the cost of production has changed (Greenleaf, 2011). Take for instance, a case where the cost of steel bar increases by a certain dollar, the cost of the finished product such a car definitely would sky rocket. Therefore, it is evident that monopoly may lead to rise of service and goods prices, a burden unnecessarily extended to the costumers. In addition, monopoly comes as an added disadvantage to the employee of the company that is enjoying the monopoly. This is a complete irony since the company accrues lots of profits and sales, its employees should the best remunerated in that kind of economy. This happens when a company may decide to decrease the salaries of its employees in order to reduce the total cost it undertakes before a finished product comes of age (Kumagai, 2013). For example, in a given country where a certain hospital gives its doctors and nurses’ low wages in the enslavement that the doctor cannot change his job simply because that is the only hospital in that country is an example of how monopoly may encourage exploitation. In the same scenario, a company that enjoys monopoly would hardly extended extension and motivation incentives to its employees. Things like payment for seminars, courses, and forums may never come so as the company to amount good profits. They do so not only to tie the employees inside their institution but also to create redundancy in employees’ skill making them not able to work with other organizations (Greenleaf, 2011). It is therefore reasonable; to highlight that monopoly leads to unfair treatment of employees and give birth to demonise for employees. On the other hand, there are opinions, which are pro-monopoly. The argument in support of this idea is that monopoly should not encircle within the economic realms of a given context rather in the view of global business, sometimes monopoly may be of benefit (McKenzie& Lee, 2008). Some opinions suggest that monopoly helps a company to import their products and compete with foreign companies (Lugard, Lugard & Plompen, 2005). This view came when a realization came into reality that a company may have an unparalleled monopoly within its country of operation but face global competitions which stifle its success. As a result, the home monopoly may be used as an advantage to invest and produce more qualitative goods, which in turn would have to compete effectively with the global business arena (McKenzie& Lee, 2008). For a company to penetrate successfully the global market needs more than these factors. Most of the companies would have to consider the aspect of different cultures in its service and goods production in order to be successful. The company may also have to incur some extra cost during the translation process of its goods. This would in turn mandate this company to attach that cost to the goods or service they are giving out hence an extra cost to consumers. Therefore, for the reasons above, the company may not be as successful globally as it may enjoy monopoly in the local economy. Conclusion In conclusion, the idea of decreasing the qualities of goods, tempering with the gratification of consumers, skyrocketing of the prizes, and are all disadvantages of monopoly. As much as the operations of a certain company is yielding profits, the dominance of a particular market brand should encourage competition to create room for preference and choice for customers. References Dwivedi, D. N. (2006). Microeconomics: Theory and applications. New Delhi: Pearson Education. Greenleaf, W. (2011). Monopoly on wheels: Henry Ford and the Selden automobile patent. Detroit, Mich: Wayne State University Press. Kennedy, R., Waltzer, J., & Atlantic City Historical Museum. (2004). Monopoly, the story behind the world's best-selling game. Salt Lake City: Gibbs Smith. Kumagai, Y. (2013). Breaking into the monopoly: Provincial merchants and manufacturers' campaigns for access to the Asian market, 1790-1833. Leiden [etc.: Brill. Lele, M. M. (2007). Monopoly rules: How to find, capture and control the world's most lucrative markets in any business. London: Kogan Page. Lugard, P., Lugard-Hancher, ., & Plompen, P. (2005). On the merits: Current issues in competition law and policy ; liber amicorum Peter Plompen. Antwerpen [u.a.: Intersentia. McKenzie, R. B., & Lee, D. R. (2008). In defense of monopoly: How market power fosters creative production. Ann Arbor: University of Michigan Press. Read More