ANALYSIS OF MONOPOLY MARKET SITUATION
After studying this unit, you should be able to:
Identify the market where small sellers and buyers dominate.
Analyze the price output decisions undertaken by single or fewsellers and buyers.
Discover the situation of market disequilibrium in some cases.
In this unit we shall continue our study of imperfect competition but we shall now movefrom the case of large group to the case of small group of sellers. We shall attempt an in-depth analysis of such market structures where a small number of sellers operate. Suchmarkets may assume a variety of form like monopoly, duopoly, monopsony, duopsonyand Oligopoly, bilateral monopoly etc. An extreme case is just one firm. More commonlyencountered situations have a number of firms, each large enough to have some controlover the market, selling either differentiated or similar products. This part of imperfectcompetition is very complex and, therefore, offers a variety of situations and solutions.There are, however, a few clear-cut equilibrium solutions. A study of these situationswould also help in appreciating the reality around us, particularly the present status of monopoly regulation in the country. Pricing strategy is at the heart of many businessdecisions. The discussion proposed in this unit should prepare us to take up thisinteresting issue in the next unit.
If perfect competition is at one extreme and of the market structureuniverse, the other end is characterized by monopoly It exists when just one firm is onthe sole producer of a product which has no close substitutes. Just as perfect competitionis rare, monopoly is also rare in less regulated market economics. The public sector inIndia has significant monopoly elements. 4nalytically public sector monopolies have adifferent place in managerial economies and we shall not deal with them here.Although monopoly’s an extreme. form of market concentration, its study helps tis inanalyzing less extreme cases. Many of the economic relationships found under monopolycan be used to estimate optimal behaviour in the less precise but more prevalent/partlycompetitive and partly monopolistic market structures that dominate the real world:Under monopoly, the firm is the industry, naturally, a monopolist faces a downwardsloping demand curve. The fact that just one firm constitutes the industry imposes acrucial constraint on a monopolist. He can set either the price or the quantity but not both.