IBE NOTES

DEFINITION - The Monopoly is a market structure characterized by a single seller,

selling the unique product with the restriction for a new firm to enter the market. Simply,
monopoly is a form of market where there is a single seller selling a particular
commodity for which there are no close substitutes.

In a monopoly market, factors like government license, ownership of resources,

copyright and patent and high starting cost make an entity a single seller of goods. All
these factors restrict the entry of other sellers in the market. Monopolies also possess
some information that is not known to other sellers.

Features of Monopoly Market:

1. Monopoly, the firm has full control over the supply of a product. The elasticity of
demand is zero for the products.
2. There is a single seller or a producer of a particular product, and there is no difference
between the firm and the industry. The firm is itself an industry.
3. The firms can influence the price of a product and hence, these are price makers, not
the price takers.
4. There are barriers for the new entrants.
5. The demand curve under monopoly market is downward sloping, which means the
firm can earn more profits only by increasing the sales which are possible by decreasing
the price of a product.
6. There are no close substitutes for a monopolist’s product.

EXAMPLES:

Electricity Distribution: The cost of electrical infrastructure is so expensive that there are
few or no competitors for electricity distribution. This creates a monopoly.

RAILWAY - Public services like the railways are provided by the government. Hence,
they are a monopolist in the sense that new partners or privately held Companies are
not allowed to run railways. IRCTC IS A STATE WINED ENTITY AND THE ONLY
PLAYER IN THE INDUSTRY.

GOOGLE: Google has become a household name. The biggest web searcher with their
secret algorithm controls more than 70% market share. The Company has grown into a
web of services interlinked with each other like the maps, Gmail, search engine, etc. The
Company has left its competitors like Yahoo and Microsoft behind with its innovation and
technological advancement.

FACEBOOK: Facebook with its huge chunk of market share almost has a monopoly in
this business. The Company is ahead of all its competitors like Google+, Twitter, etc.
GRAPHICAL REPRESENTATION - In a monopoly market, the marginal revenue curve
and the demand curve are distinct and downward sloping. Production occurs where
marginal cost and marginal revenue intersect.

● A monopolist will seek to maximise profits by setting output where MR = MC

● This will be at output Qm and Price Pm.
● Compared to a competitive market, the monopolist increases price and reduces
output
● Red area = Supernormal Profit (AR-AC) * Q
● Blue area = Deadweight welfare loss (combined loss of producer and consumer
surplus) compared to a competitive market

MONOPOLIES AND RESTRICTIVES ACT, 1969 (MRTP)

CONCEPT: MRTP Act was enacted in 1969 to ensure that concentration of economic power in
hands of few rich. The act was there to prohibit monopolistic and restrictive trade practices. It
extended to all of India except Jammu & Kashmir.

OBJECTIVE OF THE ACT:

1) PREVENTION AND CONCENTRATION OF ECONOMIC POWER IN A FEW HANDS.

2) CONTROL AND REGULATION OF MONOPOLIES IN CERTAIN SECTORS

3) PREVENTATION OF UNFAIR TRADE PRACTICES

4) PREVENTION OF RESTRICTIVE TRADE PRACTICES

5) TO CONTROL MRTP PRACTICES

6) TO REGULATE RESTRICTIVE TRADE PRACTICES.

The following points highlight the 4 main recommendations of MRTP Act. The recommendations
are:
1. Authorities under the Act
2. Concentration of Economic Power
3. Restrictive Trade Practices
4. Monopolistic Trade Practices

Recommendation # 1.

Authorities under the Act:

The main administrative body under the Act is the MRTP Commission. The MRTP Act lays down
provisions detailing the terms of office, conditions of service of members, and the appointment
of directors. The Commission is a quasi-judicial body and investigates complaints into
monopolistic and restrictive trade practices.

Recommendation # 2 - Concentration of Economic Power:

The scheme of the Act to prevent the concentration of economic power is to make compulsory
the registration of all enterprises which are of a certain size and those which have more than a
certain share of the market. The idea behind registration is that this makes it impossible for
registered concerns to make any further expansion without permission from the Central
Government.

Such registered companies cannot promote new undertakings or join with others without
Government clearance. The rationale behind this is that an economically powerful enterprise,
which already controls a major portion of the market, should not, unless there are compelling
reasons, be allowed to increase their dominance of the market.

Recommendation # 3 - Restrictive Trade Practices:

Other key concepts in the MRTP Act are restrictive trade practices, monopolistic trade practices
and unfair trade practices. In order to control these trade practices, the prime instrument is the
registration of agreements relating to restrictive trade practices which are, by definition,
restrictive such as Resale Price Maintenance, Price Fixing Agreements etc.

Only if the company can show that certain good results will follow from restrictive trade
practices, which outweigh the harm from the practice, will the restrictive trade practice be
allowed.

Recommendation # 4 - Monopolistic Trade Practices:

The MRTP Act provides that where some undertakings are indulging in monopolistic trade
practices, it may refer the matter to the MRTP Commission for investigation.

The MRTP Commission is then supposed to make a thorough investigation into the matter and
recommend to the Government what steps should be taken to discontinue the practice. The
Government may make any order which, in effect, eliminates the monopolistic trade practice.

CURRENT STATUS OF MRTP ACT:

THIS ACT IS NOT IN FORCE IN INDIA CURRENTLY AS IT WAS REPEALED AND WAS REPLCED BY
COMPETITION ACT 2002 WITH EFFECT FROM SEPTEMBER 1,2009. THE MRTP COMISSION WAS
REPLACED BY COMPETITION COMISSION OF INDIA.
The Monopoly and Restrictive Trade Practice Act 1969 became obsolete in the present world of
throat cutting competition. The MRTP Act prevent the expansion of the companies whose assets
was 100 crores, because these companies need to take government permission to expand their
business.

CONCLUSION -
THE MRTP ACT, BESIDES ADVERSELY AFFECTING ECONOMIC GROWTH, BLUNTED INDIAN
COMPANIES’ ABILITY TO GROW, CONSOLIDATE AND IMPROVE COMPETITIVENESS. THIS HAS
HAD A VERY DAMPENING EFFECT ON THEIR GLOBAL COMPETITIVENESS.

IT CAN BE SAID THAT THE MRTP ACT WAS SUCCESSFUL TO AN EXTENT. HOWEVER, DUE TO
SCARCITY OF RESOURCES, LACK OF CLEARLY DEFINED PROCEDURES AND CUMBERSOME RULES
AND REGULATIONS, TH ACT WAS NOT AS EFFECTIVE AS IT WAS SUPPOSED TO BE.

REFERENCES – econmomictimes.com, economicshelp.org, Wikipedia and gktoday