What Is the Characteristic of the Monopoly - Case Study Example

Monopolies have unique products for them to be the only sellers of that product since they may have patents for producing the products or other firms are prohibited from entering the same industry.

Barriers to Entry and Exit
Monopolies are given the right to be the only firms in operation as a result of various barriers to entry into the industry. The major barriers are permits or licenses, ownership of key resources, copyrights, and patents, high start-up costs, and being offered subsidies.

Monopolies may also come across barriers in going out of the market, whereby they are restricted from exiting the market if they are responsible for producing an important product. (Musgrave et al, 41). If a government concludes that products manufactured or provided by such firms are indispensable for the benefit of citizens then such monopoly could be halted from exiting because it improves the living standards of people.

Specialized Information

Monopolies are also characterized by being in charge of technological know-how used in production or information, which is not available to potential competitors. In addition to this, monopolistic enterprises might have some information or technology, which is not known to others. The technology or information may or may not be solely owned and it could even be a secret formula, which could be a unique way of producing the distinctive product, which will leave other firms in no position to produce the same
How monopoly arises

The key source of a monopoly is the hurdles to entry, which originate from sources such as ownership of key resources and patents, whereby the government may give individual firms the exclusive rights to produce some products. Therefore, production costs will make the only producer more proficient compared to a large group of producers, which will be forced to go out of the market (Musgrave et al, 21).

How we can regulate the monopoly
The government can regulate a monopoly to prevent heightened prices in a market, and this is achieved by setting the average price of products. The main drawback is that at times the regulated prices are below average for the total costs incurred, which means that prices are lower than the producer’s average total costs, and in such cases, a firm could make losses. To solve this problem, there are two main strategies that a government can implement. One would be to provide a subsidy to the subject firm, where the government gets tax from the general public, which will be used to fund the monopolies for production. The other option would be to let the firm have some benefits gained from reduced costs of operation so that the prices of products are reduced. (Musgrave et al 21).

Give some examples of monopoly
The United States postal service is one of the monopolies as it enjoys the exclusive rights to deal with first-class mailing services in the United States (Tucker, 157).
DeBeers is another monopoly because it has acquired the ownership of the supply of diamonds and this leaves other companies in no position to acquire the resources for diamond production (Tucker, 157). Read More