monopoly

• Monopoly


  A firm that has a market share of ~ 25%
• Pure/Natural monopoly


  Have 100% of market share
• Main assumptions of monopolies


  1. Profit maximisers
  2. One dominant firm
  3. No substitutes
  4. High barriers to entry
• Examples of monopolies


  • Local train services (regional)
  • Google chrome (working)
  • London underground (pure)
  • Rural pubs (local)
• Barriers of entering market

  • Economies of scale
  • Vertical integration
  • Brand loyalty
  • Control of important decisions
  • Expertise, goodwill + reputation
  • Patent protection + trademarks
• Market power


  A firm's ability to set prices above a level that would exist in a highly competitive market

  • Higher prices = higher supernormal profits
  • Allows firms to keep high profits and prevent new firms from entering
• Monopoly power


  A single firm has control over a market for a particular product/service

  • Allows for the firm to set prices/production levels (price makers)
• Disadvantages of monopoly power

  • High prices
  • Impacts lower income people
  • Might get too big --> diseconomies of scale --> less productive efficiency
  • Absence of competition --> x-inefficiencies
• Advantages of monopoly power


  • Profits can be used for capital investments + research projects
  • Benefits from huge economies of scale
  • Price discrimination
  • Domestically, they can face global competition
• Policies to control monopoly power


  • Industry regulation
  • Trade liberalisation
  • Windfall taxation