Monopoly & Monopolistic Competition

• Monopoly


  A market structure in which a single seller controls the supply of a good or service
• Monopoly


  • Lack of competition
  • Higher prices
  • Barriers to entry
• Lack of competition in a monopoly


  There is only one seller or producer of a particular good or service, giving them complete control over the market
• Higher prices in a monopoly


  Monopolies have the power to set prices at a level that maximizes their profits, often resulting in higher prices for customers
• Barriers to entry in a monopoly


  Monopolies often maintain their position through various barriers entry, such as high start-up costs, exclusive access to resources or technology, or strong brand recognition
• Types of monopoly


  • Natural Monopoly
  • Geographic Monopoly
  • Technological Monopoly
  • Government Monopoly
• Natural Monopoly


  This market is characterized by high start-up costs and, thus, the most efficient for one business to offer a product or service
• Geographic Monopoly


  One business provides a service/product to one area. No competitor wants to enter the market, perhaps because of the remoteness of the location or low-profit margin. Hence, a single seller enjoys the region
• Technological Monopoly


  A monopoly that occurs when a single firm controls manufacturing methods necessary to produce a certain product, or has exclusive rights over the technology used to manufacture it
• Government Monopoly


  This is a government-imposed market; most times, it is for regulatory reasons. For example, the government may control electricity supply and distribution for strategic reasons
• Advantages of monopoly


  • Potential for economies of scale
  • Ability to invest in research and development
  • Innovation and product development
• Disadvantages of monopoly


  • Higher prices for consumers
  • Lack of choice and variety
  • Potential for abuse of power and anticompetitive behavior
• Monopoly examples


  • Microsoft: Known for its dominance in the operating system market
  • De beers: Controls the majority of the world's diamond production
  • Pfizer: Holds patents on many popular prescription drugs
• Monopolistic competition


  A market structure in which many firms sell products that are similar but not identical
• Monopolistic competition


  • Differentiated products
  • Some degree of market power
  • Easy entry and exit
  • Many firms
  • Non-price competition
• Differentiated products in monopolistic competition

  Firms in monopolistic competition produce products with unique features, branding, or packaging, giving them control over prices and the ability to target specific market segments
• Market power in monopolistic competition

  Firms have some control over prices and outputs due to product differentiation, allowing them to influence consumer preferences and compete effectively in the market
• Easy entry and exit in monopolistic competition

  New Firms can enter the market easily, while existing firms can exit if they become unprofitable. This dynamic competition prevents firms from maintaining excessive profits for extended periods
• Many firms in monopolistic competition

  Monopolistic competition involves a large number of firms competing in the market, leading to a high level of competition and variety of products for consumers
• Non-price competition in monopolistic competition

  Firms in monopolistic competition focus on non-price competition, such as advertising, product design, and customer service, to attract customers, rather than competing on price alone
• Advantages of monopolistic competition


  • Variety and choice for consumers
  • Incentives for firms to innovate and differentiate products
  • Price competition can benefit consumers
• Disadvantages of monopolistic competition

  • Limited price competition and potential for higher prices
  • Costs of advertising and marketing to differentiate products
  • Potential for smaller firms to be priced out of the market
• Examples of monopolistic competition

  • Fast food restaurants: McDonald's, Burger King, and Wendy's
  • Athletic footwear: Nike, Adidas, and Under Armour
  • Electronics: Apple, Samsung, and Sony