Mono means one and poly means seller. Therefore, meaning of
the word monopoly is only one seller. The dictionary meaning of the word
monopoly is the sole right to produce and sell a good by a person, government
or corporation. Therefore, when a farm produces a good and supplies it to
innumerable customers, then the farm is called a monopoly business and the market
where that good is bought and sold is called the monopoly market.
The farm that achieves the monopolistic right to sell a good, that farm
controls the supply of the good in the market. Up to a fixed period of time, no
other farm than this particular one can produce that good, so there is no
difference between a farm and an industry in the monopoly market. A completely
monopolistic market may be a bit difficult to be found. But a number of
examples can be given of the almost monopoly market.
It can be expected that after studying this chapter, we will be able to-
·
Compare between monopoly market and monopolistic
competitive market
·
Be inspired to know about the reasons of the
change in the price of goods and their influence
·
Draw the market type chart on the basis of
competition
Monopoly Market Structure
The following structure can be identified if the monopoly
market is analyzed.
1. The seller
controls the production or supply: In a monopoly market, there is only one
producer or seller. Therefore, the seller is the one who controls the
production and supply of the good in the market entirely.
2. There is no near
alternative good: There is no near alternative good for the product
produced and sold by the monopolistic farm. That means there is no similar or
nearly similar good for that product.
3. Try to acquire the
highest profit: The objective of the monopoly businessman is to get the
highest profit.
4. The farm and
industry are the same for the monopoly business: There is only one farm in
monopoly market. Thereby, that farm is known as the industry.
5. The average
revenue curve and the marginal revenue curve in the monopoly market: In the
monopoly market, both the average revenue curve and the marginal revenue curve
move downward. But the MR curve remains below the AR curve.
 |
| Production |
In the picture, on the horizontal axis, the production and
on the vertical axis the average and marginal revenue are shown. The AR and MR
curves stand for average and marginal revenue respectively. It being the
monopoly market, here the AR and the MR curves both are moving downwards and MR
curve is below the AR curve.
6. Singular controller of the price and supply: The
monopoly farm singularly supplies the production. Being the only
producer, it can control the price and the supply of the product very easily.
However, the farm either can control the price or the supply, it cannot control
both at a time.
7. The monopoly farm changes the production of a good to
influence the price and decides for the profit: The monopoly farm can
produce less and sell at a high price or produce more and sell at a low
price.
8. The entry of a new farm is strictly prohibited: In
the monopoly industry, there is no opportunity for any new farm to
enter. When there is possibility for a new farm to enter, the monopoly farm
increases the production and allows the price to fall. Thereby, in fear of a
tentative loss, the new farm does not enter. That is why in a monopoly market,
no new farm can enter.
Monopolistic Competitive Market
In the monopolistic competitive market, a few
characteristics of both the perfectly competitive market and the monopoly
market are observed. In a monopoly market, the goods that the different farms
produce may be similar but not completely the same. That is there are some
differences between the products. And in this differentiation of the goods, the
features of the monopoly market are prevalent. On the other hand, as there are
numerous buyers and sellers, the features of a perfectly competitive market are
also observed. Therefore, competition with the products that are almost similar
but yet can be differentiated, and monopoly production, the market that grows
with the combination of both of these that is known as the monopolistic
competitive market. For example, monopolistic competition products - body soap.
Body soaps made by different companies are almost the same, yet it is possible
to differentiate between them. e.g. - the covers are different or the scents
used are different. If the price of any of these soaps rises, the demand of
soaps may fall a little, but does not become zero. The fixed buyer of this soap
always buys this soap. If there is a change in the price of these goods, the
buyer does not leave to consume these goods or to use it.
Monopolistic Competitive Market Structure
The major structures of the monopolistic competitive market
are discussed below.
1. Number of
farms/sellers: In monopolistic competition, one farm can control a small
portion of the total production of the market. So, it is not possible for
any farm to create considerable influence upon the price of the good or the
total production. Therefore, there are sometimes unions or farms that belong to
a group.
2. Differentiation between the produced goods: The goods
that different farms produce under monopolistic competition, although
they are quite alike, yet it is possible to differentiate between them. The
goods are different to some extent regarding quality and some external factors.
That is the meaning of differentiation between the products means that the
goods produced by different farms are not the same. That is why the
monopolistic competition starts off.
3. The free entry and exit of a farm in the industry: In
the monopolistic competition, there is no restriction for any farm to
enter the industry or exit. Usually if any farm obtains excessive profit over
the short term, in the long term, new farms enter the industry. Alternatively,
facing a loss, a farm can leave the industry in the long term. There is no
internal or external objection regarding that.
4. Advertisement and the cost of selling: Each of the
farms publicizes more to enhance its selling. The cost of advertising
and other related costs of selling for these farms therefore increase. The
farms compete with each other by advertising and the standards of qualities of
the products.
5. The nature of demand: If a farm increases the
price of a good, many consumers buy the alternative goods of other
farms, but here are some consumers who continue to buy the products of the
first farm even if that is in a smaller quantity. That means the demand for
some goods do not fall to be zero even when the farms increase the price of
that good. Some of the buyers have special preferences for some farms,
therefore, the shape of the demand curves of each of the farms are not usually
the same. The shape of the demand curve mainly depends upon how different the
good of the farm that is being considered is from the goods of the other farms.
6. Magnifying profit: In a monopolistic competitive
market, the objective of each of the sellers is to magnify the amount of
the profit to its optimum limit.
7. The presence of group balance: Group balance can
be observed in the monopolistic competitive market. Professor E. H. Chamberlin
defines the institution made of the combination of these farms as the group
balance rather than calling the combination of these farms as industry.
8. Cost and demand: The cost and demand of the goods
produces by the monopoly farm can be differentiated. The farms can face
similar kinds of demands for their goods. The situation of costs may also be
similar for all the farms.
9. Resemblance and similarity: While discussing about
monopolistic competition, Professor Chamberlin
assumes at first that, the farms included in each of the groups have the same
kind of costs and demand curves. That is each of the farms belonging to a group
faces the similar kinds of costs and demand curves. Therefore the farms in a
monopolistic competitive market are quite alike. In contrast, in this type of
market, if one farm changes the price of the good or production, the impact is
extended to many of the farms. So, the influence is upon the other farms. Professor G. J. Stigler
defines this characteristic as resemblance.
10. Copying the goods: In the monopolistic
competitive market, one seller cannot copy the good produced by another
seller completely. Thereby, each of the sellers or farms, like the monopoly
farms, can control the supply of their own goods and thus, by controlling the
supply can also control the price of their goods.
11. Long term situation: The balance of the farm in
the long term in the monopolistic competitive market
remains at the normal profit level like that of the perfectly competitive
market.
End
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