Characteristics_of_a_Monopoly

Characteristics of a monopoly (Anonymous) As a monopoly, “Wonks” has become the single firm within their industry and with that, they have the ability to control the prices at which they sell their products. This is because they do not face competition from other firms and there are no strong, immediate substitutes for their products. By controlling the market prices for their products, so long as consumers are still willing to pay the price, the Wonks remains a price maker and a profit maximizer. These are characteristics that are shared in all monopolies. Unlike an oligopoly, Wonks would still benefit from charging a market price that would not turn away a significant percentage of their consumer base for cheaper alternatives. In Wonk's case, consumers would perhaps consider purchasing other snack food, like pita chips or rice crisps. Wonks would have to maintain a stable price so that it could retain its profits in the long run. A possible benefit that may also be available to a monopoly is international competition. Given that Wonks is now the single producer of potato chips; they are likely to make substantial economic profits that would allow them to compete overseas. This could not only boost the quantity of their production on a global scale, but also encourage lower prices. The government would also have the incentive to subsidize this industry to account for the revenues that it would add to the nation's GDP. Wonks would also have the opportunity to market and sell its products under different names at different prices. This is another example of price discrimination. Consumers may not have the information available to them to determine if the products are in fact only slightly different or exactly the same. A brand of chips may be sold at a higher price than the other for example. The one sold at a higher market price may also have been marketed more aggressively to consumers. An example of price discrimination would be in the case of Apple 's laptops. Black models will usually sell for higher than white models. This indicates that consumers are more inclined to purchase black models, however it may also be viewed that the white models are being sold at a discounted price. “If Apple focused exclusively on offering a premium product, it would not be able to achieve the same economies of scale, and thus the cost of that product would be a lot higher (Weisenthal, 2006)”. However, under government regulations, Monopolies may be required to charge a lower price for their products. In the case of Wonks, they may still benefit from charging a lower price for their products, if federal regulations require them to do so, and if they are intent on preventing competition from entering their market. If Wonks is run like the majority of monopolies and is able to produce a larger economic profit than in a competitive monopoly, Wonks may also have the incentive to research new technology that would allow them to produce their products at a cheaper price, and thus increase the units of output without sacrificing marginal revenue. As a monopoly, Wonks would also have the opportunity to patent their technological achievements within their industry. This may further dissuade entry by other firms in this market, but it would also impede research as well, considering that there is only one firm within the industry. A competitive market would have provide grounds for numerous firms to conduct research in what may spawn more competitive and innovative technology that would pass on to consumers. In the case where only one firm exists; one would likely describe it as a 'natural monopoly' (Case, Fair, & Oster). “A natural monopoly is a firm in which the most efficient scale is very large. Here, average total cost declines until a single firm is producing nearly the entire amount demanded in the market (Case, Fair, & Oster, p. 270).” Although any monopoly is likely to have its downfall and inefficiencies. A natural monopoly is typically one that is still likely to be contested and regulated by federal law. In a model that favors the Laissez-faire economy, it could be suggested that the presence of a natural monopoly would only be a temporary one. “Natural monopoly is more likely to occur where the market is small: a growth of market demand can shift the demand function to the right, and this could eliminate the monopoly. Moreover, as natural monopoly depends upon the technology employed, technological innovations can open it to competition and, again, eliminate it (European Journal of the History of Economic Thought, p.317-53 ).” The market structure that would likely benefit Wonks would be the one which would earn it the greatest economic profits. A market structure that would fit this model would be one with less federal regulation and also an industry where competitors are less likely to enter An industry with a single firm in control of a product would likely work against consumer interests. Monopolies typically have a lower output and a higher price. There is also a lack of variation and urgency to produce new ideas or implement alternative technologies that would stimulate greater competition. In certain circumstances within the health-care industry, a consolidation of health care firms by the means of acquisition or mergers, which would include physicians, hospitals or insurers, would facilitate higher prices due to a lack of competition. Albeit, this is not always the case considering that a monopoly has different forces at work that could give consumers a benefit or a disadvantage (Haas-Wilson, 2003). Wonks is not required to put much effort in implementing or researching new technology, given that they are the only industry that sells potato chips to consumers. Another aspect in having Wonks as the single producer of potato chips, would be the likelihood of price discrimination. Even if Wonks did manage to become competitive on an international scale, they may not see the reason to lower the price in countries that are still willing to pay more for their products. They also have the control to sell their products in bulk, at a lower price per unit. In conclusion, monopolies do not work for the benefit of consumers and restrict competition. Wonks would present their consumers with less choices and higher prices. They would limit the variation and competitiveness that is required for an efficient market. A the single producer of potato chips, Wonks does not require to be productively efficient given that they will still retain profits. References Mosca, M. (2008). On the Origins of the Concept of Natural Monopoly: Economies of Scale and Competition. European Journal Of The History Of Economic Thought, 15(2), 317-353. Case, K.E., Fair, R.C., and Oster, S.E. (2009) Principles of Microeconomics (9th ed). Upper Saddle River, New Jersey: Pearson Prentice Hall. Haas-Wilson, Deborah (2003) Managed Care and Monopoly Power: The Antitrust Challenge. Weisenthal, Joseph (2006) Price Discrimination Lowers Overall Prices... Retrieved July 1, 2012 from http://www.techdirt.com/articles/20060706/1110208.shtml ----------------------- Characteristics of a monopoly