Sub: Economics Topic: Micro Economics
over the price of goods.A monopoly is a market structure in which there is only one producer/sellerfor a product. In other words, the single business
the industry. Entry intosuch a market is restricted due to high costs or other impediments, whichmay be economic, social or political. For instance, a government can create amonopoly over an industry that it wants to control, such as electricity.Another reason for the barriers against entry into a monopolisticindustry is that oftentimes, one entity has the exclusive rights to a naturalresource. For example, in Saudi Arabia the government has sole control overthe oil industry. A monopoly may also form when a company has a copyrightor patent that prevents others from entering the market.In an oligopoly, there are only a few firms that make up an industry. Thisselect group of firms has control over the price and, like a monopoly; anoligopoly has high barriers to entry. The products that the oligopolistic firmsproduce are often nearly identical and, therefore, the companies, which arecompeting for market share, are interdependent as a result of market forces.Assume, for example, that an economy needs only 100 widgets. Company Xproduces 50 widgets and its competitor, Company Y, produces the other 50. The prices of the two brands will be interdependent and, therefore, similar.So, if Company X starts selling the widgets at a lower price, it will get agreater market share, thereby forcing Company Y to lower its prices as well.
Concept of Market Power:
In general, Economists define “Market Power” as the ability of a firm or groupof firm with in a market to profitability charge prices above the competitionlevel for sustained period of time. Although any firm can raise its price, notevery firm can profitability do so. As a result, a distinguishing characteristicof a firm or group of firms with market power is that their prices can beraised without the firms or group of firms losing so many sales that the priceincrease is unprofitable. If there are close substitutes or others could easilybegin producing close substitutes, a firm will not profit from a price increaseand then by the definition does have market power.
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