1.2.20 Monopolies

• define monopoly

  when there is a dominant seller in a market
• What are the Features of a Monopoly (4)

  It is a firm that dominates the market

  Unique product

  Price Maker

  Barriers to Entry
• unique product


  Products that are highly differentiated and have no substitutes in a pure monopoly
• How can a monopoly change the prices they charge

  They can increase the prices they charge by restricting the quantity supplied of their goods in the market
• How do other firms monopolies happen?

  Monopolies happen when competition is discouraged
• Monopolistic markets markets have a high/low barriers to entry. Why?

  High, because there's obstacles preventing from a new entrant from trying to compete
• What are legal barriers in a monopoly? What does it mean?

  when the government can award a contract to a firm to provide a service with forbidden competition, BtE
• what is a patent?

  licence that grants permission to operate as a sole producer of a newly designed product, BtE
• How are patents significant to a firm being a monopoly?

  they can make a firm the sole supplier of a product for up to 20 years, BtE
• how can a firm use the money gained from patents?

  they can charge higher prices and use the money for R&D costs
• What are marketing budgets in an monopoly?


  Normally monopolists have a strong name, spending a lot on advertising, which new firms wouldn't be trusted with ads, BtE
• what is technology in an monopoly

  When a firm has up-to-date technology, it could be high BtE
• In relation with monopolies, what are high start-up costs?

  the cost of setting up a firm is sometimes too high for other firms
• How can high start up costs prevent competition?

  because some firms might find it difficult to match such financial commitment
• What are the advantages of an Monopoly?(3)

  Innovation

  Efficiency

  EoS
• How could efficiency be an advantage of a Monopoly? (2)

  In natural monopolies, it is more efficient for one firm to supply all customers

  Firms exploit EoS because of this
• How could innovation be an advantage of a monopoly for booth a firm and a consumer? (2)

  Monopolies make high profits, and with that money they can invest in R&D

  Consumers benefit from new products and new tech
• How could EoS be an advantage of a monopoly for a firm and a customer?

  low avg costs, low price
• What are the disadvantages of a monopoly? (4)


  High prices

  Restricted choice

  Lack of Innovation

  Inefficiency
• How can high prices be a disadvantage for Monopolies?

  Monopolies can restrict output to force up the price
• How could restricted choice be a disadvantage for monopolies?

  SInce the customers wouldn't be able to switch suppliers if dissatisfied
• How could lack of innovation be a disadvantage of monopolies in a market?

  Because firms don't have the incentive to spend money on innovation, since its the only choice in the market
• How is Inefficiency a disadvantage of monopolies in a market? (3)

  No competition -> No incentive to keep cost down

  DoS -> higher avg costs -> High prices

  poor customer service