Monopoly: Difference between revisions
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==How it works== | ==How it works== | ||
{{Placeholder box|How the practice works.}} | {{Placeholder box|How the practice works.}} | ||
=== Types of monopolies === | |||
* Pure Monopoly: One company has complete control over a product's supply, with no similar alternatives and significant obstacles for others to enter the market. | |||
* Natural Monopoly: One company can deliver a product or service more effectively than several companies could. | |||
* Public Monopoly: Government-controlled organizations that provide necessary services, such as water and electricity. | |||
* Monopolistic competition: This market structure includes many sellers who offer different products and have some level of market influence. | |||
===Characteristics of a monopoly=== | ===Characteristics of a monopoly=== | ||
*Single producer or seller supplying the entire market demand | *Single producer or seller supplying the entire market demand.<ref>{{Cite web |last=Nasrudin |first=Ahmad |date=January 22, 2025 |title=Monopoly: Meaning, Examples, Characteristics, Causes, Advantages, Disadvantages |url=https://penpoin.com/monopoly/ |website=penpoin.com}}</ref><ref>{{Cite web |title=Monopoly |url=https://www.law.cornell.edu/wex/monopoly |website=law.cornell.edu}}</ref> | ||
*No close substitutes or comparable product for consumers | *No close substitutes or comparable product for consumers. | ||
*High barriers to entry prevent competitors from entering the market | *High barriers to entry prevent competitors from entering the market | ||
*Price maker ability allows monopolist to set market prices | *Price maker ability allows monopolist to set market prices | ||
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====Price Discrimination Strategies==== | ====Price Discrimination Strategies==== | ||
Charging different prices to different customers for the same product: | |||
*First-degree: Charging each customer their maximum willingness to pay. | *First-degree: Charging each customer their maximum willingness to pay. | ||
*Second-degree: Pricing varies by quantity purchased. | *Second-degree: Pricing varies by quantity purchased. | ||
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Economists identify several significant problems with monopoly power: | Economists identify several significant problems with monopoly power: | ||
=== Higher prices and reduced output === | ===Higher prices and reduced output=== | ||
Monopolists typically charge higher prices and produce less output than would occur in competitive markets. | Monopolists typically charge higher prices and produce less output than would occur in competitive markets. | ||
=== Deadweight welfare loss === | ===Deadweight welfare loss=== | ||
Reduce output creates a deadweight loss, a reduction in total economic welfare not transferred to any party. This represents the value that could have been created if not for the monopolies restrictions of output. | Reduce output creates a deadweight loss, a reduction in total economic welfare not transferred to any party. This represents the value that could have been created if not for the monopolies restrictions of output. | ||
=== Reduced consumer surplus === | ===Reduced consumer surplus=== | ||
Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits | Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits | ||
=== Productive inefficiency === | ===Productive inefficiency=== | ||
Without pressure, monopolies may lack incentives to: | Without pressure, monopolies may lack incentives to: | ||
* Minimize costs. | *Minimize costs. | ||
* innovate or improve product quality | *innovate or improve product quality | ||
* Operate at minimum efficient scale | *Operate at minimum efficient scale | ||
=== Potential for abuse of power === | ===Potential for abuse of power=== | ||
* Paying suppliers less | *Paying suppliers less | ||
* Lowering wages for workers | *Lowering wages for workers | ||
* Influencing political processes through lobbying | *Influencing political processes through lobbying | ||
==Examples== | ==Examples== | ||