Monopoly and olygopoly Essay

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity (this contrasts with amonopsony which relates to a single entitys restrainer of a mart to purchase a good or assistance, and with oligopoly which consists of a a few(prenominal) entities dominating an sedulousness) Monopolies argon thus characterized by a lack of scotch emulation to produce the good or service and a lack of vi adapted substitute goods. The verb monopolize refers to the process by which a company gains the skill to raise hurts or exclude competitors.In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has signifi fecal mattert grocery business office, that is, the federal agency, to charge mellowed prices. Although monopolies whitethorn be big businesses, size is non a characteristic of a monopoly. A sm altogether business may still wee the power to raise prices in a sm any assiduity (or market place). A monopoly i s distinguished from a monopsony, in which on that forefront is only unrivaled buyer of a yield or service a monopoly may similarly watch monopsony control of a sector of a market.Likewise, a monopoly should be distinguished from a stipulation (a public figure of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies atomic number 18 all situations such that one or a few of the entities have market power and at that placefore move with their customers (monopoly), suppliers (monopsony) and the some other companies (oligopoly) in ways that leave market interactions distorted. When non coerced legally to do otherwise, monopolies typically maximise their profit by producing fewer goods and selling them at higher prices than would be the case for perfect competitionMonopolies can be established by a government, form naturally, or form by integration. In economics, the idea of monopoly i s important for the study of market structures, which directly concerns normative aspects of economic competition, and provides the basis for topics such asindustrial scheme and economics of regulation. thither are four basic types of market structures by traditional economic summary perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a market structure in which a single supplier produces and sells a given product.If in that respect is a single seller in a certain industry and there are not any ending substitutes for the product, whence the market structure is that of a gauzy monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods organism produced, hardly neverthe slight companies retain some market power. This is termed monopolistic competition, whereas by oligopoly the companies interact strategically. Characteristics avail Maximizer Maximizes meshwork. Price Maker Decides the p rice of the good or product to be sold. High Barriers to Entry another(prenominal) sellers are unable to enter the market of the monopoly. Single seller In a monopoly, there is one seller of the good that produces all the output. Therefore, the whole market is being served by a single company, and for pragmatical purposes, the company is the same as the industry. Price Discrimination A monopolist can change the price and quality of the product. He sells more than(prenominal) quantities charging less price for the product in a very expansible market and sells less quantities charging high price in a less elastic market. Natural monopoly A natural monopoly is a company that experiences increasing re operates to exfoliation over the relevant roll out of output and comparatively high fixed be.A natural monopoly occurs where the average live of production declines throughout the relevant range of product demand. The relevant range of product demand is where the average equal curve is at a pull down place the demand curve. When this situation occurs, it is always cheaper for one large company to supply the market than multiple little companies in fact, absent government intervention in such markets, get out naturally evolve into a monopoly. An early market entrant that takes advantage of the address structure and can expand rapidly can exclude small companies from first appearance and can drive or buy out other companies.A natural monopoly suffers from the same inefficiencies as any other monopoly. Left to its ingest devices, a profit-seeking natural monopoly allowing produce where marginal revenue equals marginal costs. Regulation of natural monopolies is problematic. Government-granted monopoly A government-granted monopoly ( alike called a de jure monopoly) is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or company to be the sole provider of a commodity potential competitors are exclude d from the market by law, regulation, or other mechanisms of government enforcementOLIGOPOLY An oligopoly is a market structure in which a few dissipateds dominate. When a market is divided up between a few firms, it is said to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in the market. For example, major airlines same(p) British Airways (BA) and Air Franceoperate their routes with only a few close competitors, just there are also many small airlines catering for the holidaymaker or offering specialist services. Concentration ratios.Oligopolies may be identified using concentration ratios, which measure the proportion of total market share controlled by a given number of firms. When there is a high concentration ratio in an industry, economiststend to identify the industry as an oligopoly. Characteristics Profit maximization conditions An oligopoly maximizes profits by producing where marginal revenue equals ma rginal costs. Ability to even up price Oligopolies are price setters rather than price takers. Entry and exit Barriers to entry are high.3 The near important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to reject or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring actual firms qualification it difficult for brisk firms to enter the market. Number of firms Few a devolveful of sellers. 3 There are so few firms that the actions of one firm can influence the actions of the other firms. 5 Long run profits Oligopolies can retain long run abnormal profits.High barriers of entry prevent sideline firms from entering market to capture excess profits. Product antitheticiation Product may be homogeneous (steel) or differentiated (automobiles). Perfect familiarity Assumptions about perfect knowledge vary but the knowledge of n on-homogeneous economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand expires but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality. Interdependence The distinctive feature of an oligopoly is mutuality.Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firms market actions and will respond appropriately. This meaning that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firms countermoves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to strive his or her objectives.For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures.In a perfectly warring (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firms cause on market conditions is so negligible as to be safely ignored by competitors. Non-Price ambition Oligopolies tend to compete on terms other than price.Loyalty schemes, advertisement, and product dif ferentiation are all examples of non-price competition. Advantages of Oligopoly Big Businesses Gain Massive Profits One of the greatest advantages that occurs from an oligopoly is for the few businesses which control the market for a product or service to build large profits due to reduced sales costs. If honest a few companies are in control of the market, the companies have limited competition. It is able to reduce the costs of sales, advertising, promotion and public relations because there is very limited competition to pull the customers away.These reductions in cost can allow the companies in the oligopoly to build larger profits than they would have earned if there were more competitiors. Ability to Determine Prices. Instead of having to keep up with the market, the oligopolies essentially control the market. Unlike other markets where there are more competitiors, the companies in an oligopoly are less concerned about what other companies charge. They are able to establish prices for goods that people want and need based on what the companies in the oligopoly want to charge. Long limit Profits.These companies not only make massive profits, but they are able to retain them for the long haul. It takes a long time and a lot of money for a company to work its way into being a major supplier and part of the oligopoly. During this time, the existing oligopoly companies are able to maintain their profits. Disadvantages of Oligopoly Power in the Hands of a Few. If only a few companies control the availability of a specific product or service, these companies control everything about those products what they look like, what they cost and how they are sold.Putting this power in the hand of a few companies takes away the normal influences of the market and the consumer. The market and the consumer are now totally relying on the companies to make the right decisions, even during periods of market unrest such as limited availability of a specific component, or e scalating prices of raw solids. When the wealth is concentrated in the hands of a few companies, smaller businesses have a harder time being seen as a powerful player in the market. They would have to spend a lot of advertising and sales money to compete with the large powerful oligopoly companies. Creativity.When the knowledge and awareness of a product or service is concentrated in just a few companies, it can be difficult for new ideas to come into play. The existing companies may decide to minimize new products and new distribution methods since they are happy with their current processes and they dont have any motivation to be competitive by lowering prices or introducing new products or processes. For the individual consumer this lack of creativity leads to out-of-date products and services. Setting Prices. These big businesses have the power to determine what the prices will be, without any concern for competition.This is a negative for the consumer and for other businesse s. The whole idea of competitive pricing is thrown out the window when these businesses go about their pricing practices. As you can probably see, oligopolies appear to be beneficial for the companies involved in them, but not so great for the other businesses and consumers in the caller. GLOBALISATION Globalization (or globalisation) is the process of worldwide integration arising from the interchange of world catch up withs, products, ideas, and other aspects of culture.Globalization describes the interplay across cultures of macro- friendly forces. These forces include religion, politics, and economics. Globalization can choke and universalize the characteristics of a local group. Advances in transportation andtelecommunications infrastructure, including the rise of the Internet, are major factors in globalization, generating gain ground interdependence of economic and cultural activities. Though several scholars place the origins of globalization in modern times, others v estige its history long before the European age of discoveryand voyages to the New World.Some even trace the origins to the ternary millennium BCE. Since the beginning of the 20th century, the pace of globalization has proceeded at an rapid rate. Benefits of Globalisation By purchase products from other nations customers are offered a much wider choice of goods and services. Creates competition for local firms and thus keeps costs down. Globalisation promotes specialisation. Countries can begin to specialise in those products they are best at making. sparing Interdependence among different nations can build improved political and favorable links. Drawbacks of Globalisation. Cheap imports from developing nations could lead to unemployment in actual countries where the cost of production is high. Choosing to specialise in certain products may lead to unemployment in other sectors which are not prioritised. Increased competition for infant industry. Dumping of goods by cert ain countries at below cost price may harm industries in order countries. Economic globalization is the increasing economic interdependence of national economies across the world through a rapid increase in cross-bordermovement of goods, service, technology and capital.Whereas the globalization of business is centered around the diminution of international trade regulations as surface as tariffs, taxes, and other impediments that suppresses global trade, economic globalization is the process of increasing economic integration between countries, leading to the takings of a global marketplace or a single world market. Depending on the paradigm, economic globalization can be viewed as either a positive or a negative phenomenon. Economic globalization comprises the globalization of production, markets, competition, technology, and corporations and industries.Current globalization trends can be for the most part accounted for by developed economies integrating with less developed eco nomies, by means of foreign direct investment, the reduction of trade barriers as well as other economic reforms and, in many cases, immigration. Support and criticism Reactions to processes contributing to globalization have varied widely with a history as long as extraterritorial contact and trade. philosophical differences regarding the costs and benefits of such processes give rise to a broad-range of ideologies and social movements.Proponents of economic crop, expansion and development, in general, view globalizing processes as desirable or necessary to the well-being of human society209 Antagonists view one or more globalizing processes as detrimental to social well-being on a global or local scale209 this includes those who question either the social or natural sustainability of long-term and continuous economic expansion, the social morphologic difference caused by these processes, and the colonial, Imperialistic, orhegemonic ethnocentrism, cultural assimilation and cultur al appropriation that underlie such processes.The basic function of economy system Every economic system provides solutions to four questions what goods and services will be produced how they will be produced for whom they will be produced and how they will be allocated between consumption (for present use) and investment (for futurity use). In a decentralized (usually private enterprise) economic system, these questions are resolved, and economic coordination is achieved, through the price mechanism. apportionment Competitive markets not corporate-dominated oligopolies can perform well here so long as side-effects, such as externalities, are incorporated into prices.Ecological economists recognize a legitimate role of the market in society based on the efficiency of allocation of resources. A major improvement in markets includes the side-effects, so markets tell the ecological and social truth. However, pollution provides a subsidy to firms who would otherwise have to clean up their mess. They are easy to hide, hard to number, so they persist. This is called a market failure. If markets fail, this means becomes a central point of contention. ESS thus should make a big deal over market failure, which then becomes an institutional failure. Externalities.An externality is a consequence, positive or negative, of an economic activity that affects other parties without this affect being incorporated into market prices. Thus, market price deviates from the true social cost, sending the wrong signal. Note also the subtle linguistic trivialization. Interestingly, the economics profession has long neglected to assess the size or significance of externalities or to calculate the damages perpetrated on its victims, who by definition had these harms inflicted upon them without their participation-despite the obvious dysfunctions of industrialization and urbanization.Indeed, the bias of public policy in the the States has been to protect the producers, not the publi c at large. Daly comments on the trivialization of externalities by neoclassical economics When progressively vital facts, including the very capacity of the earth to support life, have to be treated as externalities, then it is past time to change the basic framework of our thinking so that we can treat these unfavourable issues internally and centrally. Global Fairness Read Sachs and grasp his message. This is authentic social ecology. Without a grand social contract, cooperation between the Global North and the Global South will fail.The results will be disastrous. Sachs realizes that copycat development, the takings of the economic development practices of the global rich, will surely lead to global ruin more leanness within vast ecological catastrophe. Orthodox western economics can neither be all-inclusive to the majority of the earths human inhabitants nor can it be sustained indefinitely by the 20% or so who enjoy its cornucopia. Sachs reveals the parasitical political character of global capitalism masquerading as shared economic development. The USA enjoys the opportunity to provide leadership here, but this honorable authority has been squandered.ESS requires such leadership, soon. A good place to start is Africa. Brown provides much insight here. Left to itself, a market society will produce large maldistributions in wealth and income. In practice, the market-driven returns to capital, as profits and capital gains, come down to the wealthy few, the capitalist class, while the returns to labor, wages and salaries, go to a multitude, the working class. This dynamic produces a class-based inequality of both wealth and income, which translates into differential political power.In the past, the inequalities were mitigated by redistributive tax policiesanathema to neo-liberalism, as exhibited by the recent Bush tax cuts. In the era of economic globalization, inequality has grown acutely within nations, including the USA, and on the global scene. Yet, economists regard this normative concern as outside the ken of scientific economics. Therefore, when issues of social justice are openly discussed in the context of sustainable development, do not turn to economics for insight.The usual deflection of the fairness discussion,now in play in the USA since the 2006 election, is to promote economic growth. Grow the pie rather than quibble over the size of the slices. But if the ingredients for physical growth become scarce, growth slows down and the quibbles morph into arguments. This can easily spin out of control. Count on it.Innovation harvesting remains the engine of economic globalization without which the system as constituted would crashalthough with runaway material growth earths ecosystems will surely crash. Schumpeter put it this way Capitalism, then, is by nature a form of economic change and not only never is but never can be stationary.Schumpeter derided the textbook picture that depicted economic progress as the resu lt of market-based competition . Rather, he pointed to intromission in products, sources of supply, organization, and technology that created a new context which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives . Indeed, Schumpeter foresaw that capitalism itself would fall victim to the turbulent task environment of its own making The capitalist process not only destroys its own institutional framework but it also creates the conditions for another. demolition may not be the right word after all. Perhaps I should have verbalize of transformation . The pivotal move of ESS is to open up a horizon for enormous technical and social progress while maintaining and even restoring harmony with nature. Thus, sustainability offers enormous opportunity. The wording of hope must replace the language of despair. There is real opportunity here. Perverse Subsidies A related topic, rarely brought into view, is the plet hora of perverse, often hidden, subsidies, including externalities, enjoyed by corporations in such established industries as energy, agriculture, and transportation.Not only do these gifts typically promote older, dirtier, less efficient industries, but they also stymie the development of innovative, cleaner alternatives depressing prospects for sustainability. For example, subsidies to cotton farmers in the USA disadvantage cotton cultivators in Africa and subsidies to nuclear power generators present an unfair advantage to start-up wind power producers. These often hidden subsidies undermine economic efficiency and promote environmental damage, but go largely neglected in the economic literature.A study released in 2001 by Norman Myers and Jennifer Kent estimates the global cost of perverse subsidies at two trillion dollars, about 5. 6% of the $35 trillion global economy. The subsidy-rich, environmentally poor Bush-Cheney energy policy was formulated behind closed doors with inpu t from energy giants like Enron but with no public disclosure. Eliminating perverse subsidies must be a first step toward building a sustainable economy. Thus, grappling with perverse subsidies and tilting the market toward renewable resources must be high on an ESS agenda.There are multiple components to economic systems. Decision-making structures of an economy determine the use of economic inputs (the means of production), distribution of output, the direct of centralization in decision-making, and who makes these decisions. Decisions might be carried out byindustrial councils, by a government agency, or by private owners. Some aspects of these structures include Coordination mechanism How information is obtained and used to coordinate economic activity.The two overabundant forms of coordination includeplanning and the market planning can be either centralized or de-centralized, and the two mechanisms are not mutually exclusive. Productive property rights This refers to owner ship (rights to the proceeds of output generated) and control over the use of the means of production. They may be owned privately, by the state, by those who use it, or held in common by society. Incentive system A mechanism for inducing certain economic agents to engage in originative activity it can be based on either material reward (compensation) or moral reward (social prestige).