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Market Structures in Set Form

Market Structures in Set Form

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Published by: rajneshchander on Feb 23, 2010
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08/28/2010

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Monopoly Market Structure
 Monopoly Market structure
 Monopoly
is a term used by economists to refer to the situation inwhich there is a single seller of a
 product 
(i.e., a good or service) for which there are no close substitutes. The word is derived from theGreek words
monos
 
(meaning
one
) and
 
 polein
 
(meaning
to sell 
).
In economics, monopoly is a pivotal area to the study of market structures,which directly concerns normative aspects of economic competition, andsets the foundations for fields such as industrial organization and
economics of regulation
. There are four basic types of market structuresunder traditional economic analysis: perfect competition, monopolisticcompetition, oligopoly and monopoly. A monopoly is a market structure inwhich a single supplier produces and sells the product. If there is a singleseller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a "pure monopoly".Sometimes, there are many sellers in an industry and/or there exist manyclose substitutes for the goods being produced, but nevertheless firms retainsome market power. This is called monopolistic competition, when thereare some sellers and the commodities may be substitute for each other or not then the market is called Oligopoly.
Rajnesh chander IMS University Of Peshawar 
 
Monopoly Market Structure
Comparison of Monopoly with Other Markets:-
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business
is
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 createa monopoly over an industry that it wants to control, such as electricity.Another reason for the barriers against entry into a monopolistic industry isthat oftentimes, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government has sole control over the oilindustry. A monopoly may also form when a company has a copyright or  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 oligopolisticfirms produce are often nearly identical and, therefore, the companies,which are competing for market share, are interdependent as a result of market forces. Assume, for example, that an economy needs only 100widgets. Company X produces 50 widgets and its competitor, Company Y, produces the other 50. The prices of the two brands will be interdependentand, therefore, similar. So, if Company X starts selling the widgets at alower price, it will get a greater market share, thereby forcing Company Yto lower its prices as well.There are two extreme forms of market structure: monopoly and, itsopposite, perfect competition. Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result,many substitutes. Perfect competition means there are few, if any, barriersto entry for new companies, and prices are determined by supply anddemand. Thus, producers in a perfectly competitive market are subject tothe prices determined by the market and do not have any leverage. For example, in a perfectly competitive market, should a single firm decide toincrease its selling price of a good, the consumers can just turn to thenearest competitor for a better price, causing any firm that increases its prices to lose market share and profits.
Rajnesh chander IMS University Of Peshawar 
 
Monopoly Market Structure
 Diagrams of different markets comparing with Monopoly:
 Monopoly Diagram:-
In the above diagram the demand curve is slopping down the monopolisthas the control over the price and if he increases the price demanddecreases and when decrease the price demand increases.
Rajnesh chander IMS University Of Peshawar 

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