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Examples of Monopolies in the Real World

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Eghosa Okungbowa

on 17 May 2014

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Transcript of Examples of Monopolies in the Real World

A monopoly is a market dominated by a single Seller. Although all monopolies have a single seller, but however have different conditions, which create different types of monopolies.
Monopoly
Monopoly: Market structure & Characteristics
There are numerous factors that set a monopoly apart from all other types of market systems. To begin with monopolies are the only markets where barriers to entry are extremely high and most times nearly impossible. unlike other market systems that have numerous firms, monopolies have only one firm and nothing more. Also monopolies lack competition because they are the only ones that produce a specific type of product that one else can offer at the time.
What sets a Monopoly Apart
Examples of Monopolies in the Real World
Some examples of monopolies in the real world are:
Energy Companies like Con Edison
Computer Programming Companies like Microsoft
Con Edison is a perfect example of a monopoly. Con Edison is the only provider of electricity, water and gas in the United States, therefore they have only one firm. To provide a country with the resources we get from Con Edison one would need a power plant, which is outrageously expensive (costs billions of dollars), which is why the entry into the market is blocked. There is no variety in goods or services, for they offer specific goods and services. Thus because they are the only firm who provides us with electricity, water and gas, they have complete control over the market.
BY: Eghosa Okungbowa
MARKET STRUCTURES
Perfect Competition
Perfect Competition: Market Structure and Characteristics
Examples of Perfect Competitions in the Real World
What sets a Perfect Competition Apart
Oligopoly
Oligopoly: Market Structure & Characteristics
Examples of Oligopoly in the Real World
What sets Oligopoly Apart
Definitions Of Important Words
In a monopoly we always assume to the following behaviors:
Entry to the market is blocked
Firms act to maximize profits
The pure monopolists buys in competitive input markets
The monopoly faces a known demand curve
Price discrimination is a well- known feature because the firm has complete control over price.
There is only one firm
There is no variety of goods
All these characteristics are what make certain businesses or organizations fall under the system of monopoly.
A market structure in which a large number of firms all produce the same product. All firms in a perfectly competitive market sell the same product for the same price.
When we think of a Perfect Competition we expect the following behaviors to be exhibited:
Many buyers and sellers participate in the market
Sellers offer identical products
Buyers and sellers are well informed about products
Sellers are able to enter and exit market freely
A large number of small firms
Perfect resource mobility
Firms have no control over prices
There is no variety in goods
All these characteristics are what make certain businesses or organizations fall under the system of Perfect Competitions.
Examples of Perfect Competitions would be:
Farming Organizations like Food Alliance



Currency Markets and Stock Markets like Wall Street




Farming organizations, are perfect examples of a perfect competitions because they all sell the same products like tomatoes, kale and squash at the same price and have no control on those prices. Also to start a farming business isn't that hard, thus there are no barriers to entry. Moreover there are many different farms so therefore there are numerous firms.
There are many factors that distinguish a perfect competition from other market systems. To begin with firms have no control over prices unlike monopolies were firms have total control. The second is that all products are identical and have no variation which isn't common in all markets systems like imperfect competition. Last but not least although this is common among some other market systems another factor that sets the perfect competition apart is the fact that there are no barriers to entry.
Monopolistic Competition
Monopolistic Competition: Market Structure & Characteristics
Examples of Monopolistic Competition in the Real World
What sets Monopolistic Competition Apart
This is a market structure in which many companies sell products that are similar but not identical. Each firm holds a monopoly over its own particular product.
When a Monopolistic Competition is thought of the following factors are taken into consideration:
There are numerous firms in abundance
Firms have a slight control over price, although not totally like a monopoly
There is variation in the products sold to consumers
The barrier entries are low
All these characteristics are what make certain businesses or organizations fall under the system of Monopolistic Competitions.

Some examples of Monopolistic Competition would be:
Airline Industries
Soda Industry
Computer Software Industries
Furniture Companies
Restaurants
The Soda industry is a perfect example of a Monopolistic Competition. This is because this is an industry that has differentiation in their products. Take Pepsi and Coke for instance they are similar but are distinguished as 2 different goods in the market. Also to go into the soda industry has very few barriers. Other reasons that make it a monopolistic firm is because they have little control in the price of the product for government agencies like the FDA have to over look things. Also there are many Soda Industries in the U.S
What sets a Monopolistic Competition apart from other market system is mainly the fact that barriers to entry are so low and that there are numerous firms. Unlike a monopoly a monopolistic competition have some variety in goods and has little control over their prices.
This is a market structure in which a few firms dominate a market. This system looks like an imperfect for of monopoly. Economists usually call an industry an Oligopoly if the four largest firms produce atleast 70 to 80% of the output.
There are many factors that set Oligopoly apart from other market systems. To begin with the act being that Oligopoly is so close to monopoly in terms of characteristics is quit unique. For instance unlike a monopoly that has only one firm a Oligopoly has about a few. Also they have high barriers like a monopoly unless their barriers aren't nearly impossible to break like that of a monopoly. That's what makes a Oligopoly so unique, its close but not quite similarity to a monopoly.
Examples of organizations and companies that have a Oligopoly market system:
Pharmaceutical Industries like Gavin Hayes
Computer Operating systems
Smart Phone Operating systems
Health Insurance Companies
The pharmaceutical industry is becoming an oligopoly due to the staggering costs of developing and marketing new drugs and because of patents that protect new products from competitors. It can cost more than $1 billion to develop a new drug, get it approved by the Food and Drug Administration and bring it to market. Also basically Pharmaceutical industries dominate the drug market. They are very few on number and have some say on their prices because they have to collaborate with government industries like the FDA.

In an Oligopoly market structure the following conditions must be met:
There are should be a few firms in number.
There should be some variety in products
Firms have some control over the price of products
The barriers to entry are very high, but not as highly impossible like that of the monopoly.
All these characteristics are what make certain businesses or organizations fall under the market system of Oligopoly.
Barriers to entry: This is an existence of high start-up costs or obstacle that prevent competitors from easily entering an industry or area of business. Barriers to entry benefit existing companies already operating in an industry because they protect an established company's revenues and profits from being whittled away by new competitors.
Commodity: A commodity has numerous definitions but they all mean the same thing. By definition it is an economic good, something that is valued or considered useful, or something that can be bought or sold.
Start-Up Costs: Non-recurring costs associated with setting up a business, such as accountant's fees, legal fees, registration charges, as well as advertising, promotional activities, and employee training
Economies of Scale: The reduction in long-run average and marginal costs arising from an increase in size of an operating unit (a factory or plant, for example). Economics of scale can be internal to an organization (cost reduction due to technological and management factors) or external (cost reduction due to the effect of technology in an industry).
Natural Economy: A type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry. Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a fair deal.
Government Monopoly: A forced form of market domination whereby a national, regional or local administration, agency or corporation is permitted to be the only provider of a certain product since any competition with their product is legally prohibited. A government monopoly is generally created and run by a government, rather than by a private business.
More..

Patent: This is a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.
Franchise: an authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities, e.g., providing a broadcasting service or acting as an agent for a company's products.
License: This is a formal permission from a governmental or other constituted authority to do something, as to carry on some business or profession.
Price discrimination- This is when a firm sells the same product at different prices to different buyers, in order to maximize sales and profits.
Market Power- This is the ability of a firm (or group of firms) to raise and maintain price above the level that would prevail under competition is referred to as market or monopoly power. The exercise of market power leads to reduced output and loss of economic welfare.
Even More...
Differentiation: This is a result of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors.
Non-price Competition: A market situation in which competitors would not lower prices for fear of a price war. Instead they focus on extensive promotions to highlight the distinctive benefits or features of their products. Non price competition is an anomaly in a free market systems based on price-quantity relationship.
Price War: A market situation in which (usually two) powerful competitors try to usurp each other's market share by progressively reducing prices until one of them retreats, at least temporarily.
Collusion: An Improper secret agreement between two or more entities, to defraud or deprive others of their property or rightful share, or to otherwise indulge in a forbidden, illegal, or illegitimate activity.
Cartel: Group of firms or nations who attempt to control price or supply of a commodity (such as oil) through mutual restraint on production. Although such collusion among sovereign countries (such as in OPEC) is grudgingly accepted, it is illegal among corporations.
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