Causes of monopoly market Rating:
A monopoly market is a type of market structure in which there is only one supplier of a particular product or service. This means that the firm operating in this market has complete control over the price of the product or service, as there are no competitors to offer alternative options. There are several causes of monopoly markets, which can have significant implications for both consumers and the economy as a whole.
One common cause of monopoly markets is government intervention. Governments may grant a monopoly to a particular firm through the use of licenses or other regulatory measures. For example, a government may grant a monopoly to a utility company in order to ensure that essential services such as water and electricity are provided to the population. However, this can also lead to higher prices and reduced competition, as there is no incentive for the monopoly firm to lower prices or improve its services.
Another cause of monopoly markets is natural monopoly. This occurs when it is more efficient for a single firm to produce and supply a particular product or service due to the high fixed costs associated with the industry. For example, it may be more efficient for a single firm to operate a water treatment plant, as the costs of building and maintaining the infrastructure would be too high for multiple firms to bear. While natural monopolies may be necessary in certain cases, they can also lead to higher prices and reduced competition.
Finally, monopoly markets can also result from barriers to entry. These are factors that make it difficult or impossible for new firms to enter the market and compete with the existing monopoly firm. Examples of barriers to entry include high start-up costs, patent protection, and exclusive contracts with suppliers or customers. While barriers to entry can protect firms from competition, they can also prevent new firms from entering the market and offering new products or services, leading to reduced competition and potentially higher prices.
In summary, monopoly markets can be caused by government intervention, natural monopoly, and barriers to entry. These markets can have significant implications for both consumers and the economy, as they can lead to higher prices and reduced competition. It is important for governments to carefully consider the potential consequences of granting monopolies and to regulate monopoly firms in order to protect consumers and encourage competition.
9 Main Causes for the Growth of Monopoly
The first two columns show the demand curve faced by the monopolist. This is usually influenced by the high cost of capital and profit will not make up for the capital. Notable examples include postal services, utilities, television, and the supply of money. The causes are: 1. In other words, the goods could only be efficiently provided under a monopoly structure.
Causes of Monopoly Monopoly exists in a case of one firm in an industry having a competitive advantage over others in supplying a certain product with no close substitutes. The difference is that monopolistic power means a company has monopoly like powers, but is not the sole provider. Diversification and Technological Integration: ADVERTISEMENTS: Diversification through proliferation of industrial units in different industrial categories and attaining technological integration by combining various stages of production under common ownership. Again the New Industrial Policy, 1991 has again liberalised many new areas for the private sector which will lead to further concentration of economic power in future. The monopolist, on the contrary, fixes the quantity of goods offered, but refuses to fix the price, which will be fixed by the In both cases, however, the absence of substitutes guarantees sustained profit and allows it to be Competition lock It is possible to block the competition by setting very low prices.
In this way, growing participation of large industries in these new industrial fields has resulted growing concentration in economic power to the large industrial houses. The State can run the affairs of a sector of the market making it generally difficult for competition to arise in those areas. Inter-Company Investment: Inter-company investment is considered another important factor for the growth of large industrial houses and growing concentration of economic power. The commodity produced by the monopolist requires a large quantity of skilled labor for its production, and skilled labor is in short supply. Moreover, the Government never made any successful endeavour to grant licenses to the small producers. The inevitable result is that the trader who has already began the business is the sole marketer and in most cases, there are increasing disadvantages.
Monopoly: Features, Revenue Curves and Causes of Emergence
In the case of the railway, being the only bulk carrier, there is no alternative. Restrictions on Imports Import quotas, tariffs, and other trade restrictions can limit competition and be a cause of monopoly. Utility companies that provide water, natural gas, or electricity are all examples of entities designed to benefit from economies of scale. In Capitalist States, the interference of the government is not on the high side but whenever the government wants to exercise this power, it automatically puts current private traders out of business and can restructure the industry while doing so. Monopoly Monopoly is a completely opposite form of market and is derived from two Greek words, Monos meaning single and Polus Meaning seller. A good example is where a business deals with the creation of automobiles that fly. Since in a monopoly market, there is a total lack of close substitutes, the cross elasticity of demand is zero in its case.
The control of a firm over key inputs gives the firm an advantage over other competitors. Control over Banking Companies: In the pre-nationalisation period, the banking system was mostly under the control of large industrial houses. If potentially low-cost monopolies fail to perform, then it is liable to be taken over by a bid. And, if it is able to consolidate its position with other barriers to entry, it could enjoy the monopoly status for a long time. The economies of scale set by the incumbent firms create a barrier to entry by emerging firms. The Source: Principles of Economics by N.
To study and analyze the nature of different forms of market and issues faced by them while buying and selling goods and services, economists have classified the market in different ways. This condition has to be met to eliminate any competition. The cost barriers were high, but the potential profits were also high. It is one of the important features of monopoly. The limited availability of the key resource will make it impossible for new sellers to enter the market.
Monopoly: Types, Causes, Consequences And Characteristics
However, there are other distant services like metro, etc. Everyone is charged similarly, for the same product. Three Causes of Monopoly Markets By Raphael Zeder Last updated Jun 26, 2020 Published Dec 31, 2018 In an economic context, a monopoly is a firm that has market power. Which of the following statements is most likely to be true? For a monopolist, the marginal revenue is always less than or equal to the price of the commodity. High start-up costs are required.
This allows the company to develop a product or service without close substitutes. At OP price, the firm can sell OQ quantity of the product, and the demand will rise to OQ 1 if the firm reduces the price to OP 1. Most times that is inconvenient and it becomes a forced decision to settle for what is available. A patent holder by law, has ownership right against any other person who wishes to market the same product or service. This kind of monopoly safeguards the interests of the firm which has done a lot of research in producing the commodity. Those in which the monopolist prevents the emergence of competitors, generally through legal mechanisms of franchisee or exclusive bidding, often by the State, as in the case of marque or copyright. Rather, the licensing authorities had the tendency to sanction the licenses of new enterprises to experienced person having proven business ability, instead of new entrepreneurs.
In other terms, it is referred to as Nationalisation. It is the sole supply source for goods and services having no close substitute. Monopsony - A market system is not just differentiated based on the number of sellers but also the number of consumers or buyers. It is relatively difficult to willingly compete with a high octane type of business. Nature also influences the formation of a monopoly market.