SECTION B: ESSAY QUESTION:

I. INTRODUCTION:

A monopoly marketplace is a market structure wherein a single seller or manufacturer dominates

the whole enterprise and controls the deliver of a certain service or product and there are no close
substitutes available. Monopoly is the complete opposite of perfectly competition (Mankiw,
2021). An practical example is Microsoft Corporation sells an operating system called Windows.
Microsoft obtained a copyright from the government for its creation of Windows. The copyright
grants Microsoft the only right to manufacture and sell copies of the Windows operating system.
Microsoft costs around $100 for a copy of Windows, leaving few options for purchasing.
Microsoft is said to hold a monopoly in the Windows market (Mankiw, 2021).

Sources: Course Sidekick

Three main characteristics of monopoly that distinguish this market from other market models:

Single seller:
This feature eliminates direct competition, giving the monopolistic business enterprise a unique
spot to manipulate the deliver and pricing of the product or service. While this may offer the
monopolist huge market strength, it can additionally weaken incentives for innovation and
performance because other companies are not facing pressure.

Barriers to entry:

This market are connected with high entry barriers, which are obstacles that prevent new
enterprises from entering and competing in the market.

Price Maker:

The monopoly determines the price of the commodity or product for sale. The price is decided by
determining the amount required to demand the firm's desired price (maximizing revenue).

II. A SINGLE PRICE AND PRICE DISCRIMINATION OUTCOMES IN MONOPOLY:

2.1 Pricing strategies:

There are two types of monopolistic pricing strategies:

A single-price monopoly requires a corporation to sell each unit of production at the same price
to all clients. The company optimizes profit by producing the quantity at which marginal cost
(MC) equals marginal revenue (MR), which determines the production Qm and Pm (Zeuthen,
2018).

Price discrimination refers to a company charges different prices to various groups of

customers for the same commodity or service, for reasons other than supply costs. Price
discrimination departs from the standard premise that there is a single profit-maximizing price
for the same commodity or service (Indeed Editorial Team, 2022).

 First-degree price discrimination, also known as perfect price discrimination, is a

pricing technique in which firms charge the highest price that a consumer is willing and
able to pay for each unit of a product or service. This technique seeks to maximize the
seller's profit (Vaidya, n.d.).
 Second-degree price discrimination is a sales tactic that businesses employ to sell a
product or service at varying rates, depending on the quantity purchased. This pricing
 strategy is designed to enhance a company's total revenue and profit by capturing a
greater share of the consumer surplus (Vaidya, n.d.).
 Third-degree price discrimination is a pricing method used by corporations to
maximize profits. It involves charging various rates to different categories of consumers
based on their willingness to pay. This approach seeks to gather as much consumer
surplus (the gap between what customers are willing to pay and what they actually pay)
as feasible when selling items or services in a competitive market (Cornière et al., 2023).

2.2 The difference between single price and price discrimination:

Sources: Mankiw 2021, Principles of Economics.9th Edition

In the figure A (single price), the space above the price and below the demand curve shows the
consumer surplus. Monopolies result in a deadweight loss due to some potential consumers who
value the good above marginal cost do not purchase it at the high price. But in the figure B (price
discrimination) there are no deadweight loss occurs as the company charges each customer the
maximum amount they are willing to pay. As the outcome, the corporation captures the total
consumer surplus from the market and that goes to monopoly producer profit. Perfect price
discrimination results in more profits, total surplus, and lower consumer surplus as compared to
the other panels. However, the practicality and extent of price discrimination are determined by
factors such as market segmentation and the monopolist's capacity to discern between customer
groups.
 To completely comprehend the differences between 2 strategies, here is an example of a
Company ACB when set the price for a product:

a/ Without price discrimination b/ Price discrimination

Price Price

$1500 Profit = $2000

Profit = $1400
90
$500
80
70

60 60
DWL MC = ATC MC = ATC

D D
MR

70 Quantity 50 100 Quantity

Both figure are in monopolistic market, but in the figure (a) shows that using a fixed price results
in a profit of $1400, but this approach leads to a significant amount of Deadweight Loss (DWL).
On the other hand, a price discrimination policy can be implemented with two different prices,
90 and 70, applied instead of a single monopoly price of 80. These two prices represent two
different points on the elastic demand curve, and by considering the demand elasticity, it will be
far more profitable to sell items to customers with inelastic demand at higher prices while selling
to customers with elastic demand at lower prices. So, it's clear that a price discrimination policy
should be implemented to boost profits. As a result, sales will growth and useless losses might be
decreased. According to figure (b), with the sales model applied according with the charge
discrimination policy, earnings are accomplished at $2000 which more than that of figure (a); at
the same time, the DWL region is extensively narrowed whilst as compared to the chart
underneath, indicating that the commercial enterprise effectively took advantage of pricing
advantages to maximise profits.
III. THE METHODS FIRMS CREATES ENTRY BARRIERS TO SUSTAIN THE
PROFIT:

3.1 Long-term equilibrium in monopoly:

Because of limits on entry and departure from the monopolistic market, companies gain
extraordinary profits in the long term. Also, because companies may sell more outputs by
lowering the price of the product, the firm's demand curve or AR curve slopes downward, and as
a result, the MR curve slopes negatively (Jain, 2023).

In the graph above, LMC and LAC represent the Long-run Marginal Cost Curve and Long-run
Average Cost Curve, respectively. To achieve equilibrium, the requirements are MR = LMC, the
LMC curve cuts the MR curve from below and is met at the OQ output level. If the firm's
product is priced at OP1 and LAC at OP, it will make a significant profit of PBAP1 (Jain, 2023).

3.2 Innovation:

Continuous innovation and investment in technology breakthroughs is an essential method for

maintaining profits in a monopolistic marketplace. A monopolistic company can retain a
competitive advantage and prevent possible new entrants from undermining its market
domination by continually enhancing its products or services (Appleyard & Chesbrough, 2017).
For instance, Microsoft has maintained its working machine monopoly by constantly innovating
and delivering new versions of Windows with updated functions and increased overall
performance (Novet, 2021). This not only attracts current consumers but also discourages future
competitors.

3.3 Economies of Scale: A Barrier:

Monopolistic businesses can use economies of scale to reduce manufacturing charges, raise
performance, and create a primary barrier to entry. With the capability to attain large
manufacturing quantities because the lone manufacturer within the marketplace, the commercial
enterprise may also hold a cost gain, making it hard for brand new competition to compete on
price (Barney & Mackey,2018). Amazon, as an example, uses economies of scale to deal with a
huge quantity of transactions and put money into green distribution hubs. The organization's
bargaining leverage wins fee blessings with suppliers, while technical developments enhance
operational efficiency. Competitive fee, at the side of services consisting of Amazon Prime,
promotes purchaser loyalty, at the same time as Amazon's global presence and enlargement into
many industries present considerable boundaries to entry for capability competition. In essence,
Amazon's economies of scale play a vital position in its domination of the net retail sector (Wu &
Gereffi, 2018).

3.4 Brand building:

Creating a sturdy brand and nurturing consumer loyalty is crucial for retaining revenue in a
monopolistic market. By using effective advertising and marketing strategies, companies can
create a sense of forte and superiority, making it hard for customers to switch to other services or
products. This cooperative connection between brand reliability and vital showcasing advances
client maintenance as well as fills in as major areas of strength for a, establishing the
monopolistic company's market mastery and guaranteeing long haul productivity (Ozuem et al.,
2016). Apple is a really perfect instance of this, with its great product ecosystem. The
organization's dedicated patron base is inclined to pay better costs for Apple gadgets because of
the perceived first-class, design, and compatibility across the product line. This ensures that the
emblem maintains its marketplace dominance and profitability (Husaini el at., 2017).

IV. THE IMPLEMENTATION OF PUBLIC POLICY TOWARDS MONOPOLY:

4.1 Increasing competition through antitrust rules:

If Coca-Cola and PepsiCo were to merge, the United States government would conduct a
thorough review. Lawyers and economists. The Department of Justice may find that merging
these two huge soft-drink firms would significantly diminish competition in the US soft-drink
industry, thereby impacting the country's economy. The Department of Justice may oppose the
merger in court, and if the judge agrees, the two corporations will not be permitted to unite.
Horizontal mergers, such as those involving Coca-Cola and PepsiCo, have historically been a
source of concern for courts. Vertical mergers (between enterprises at different phases of
production) are less likely to be blocked. Mergers between competitors are subject to more
scrutiny than other mergers. if it want to combine with one of its suppliers. The government gets
this jurisdiction over private enterprise from the antitrust laws, a series of regulations aimed at
restraining monopolistic power. The Sherman Antitrust Act, approved by Congress in 1890,
aimed to decrease the market power of enormous "trusts" that dominated the economy. In 1914,
the Clayton Antitrust Act expanded the government's authority and allowed for private legal
action. The U.S. Supreme Court described antitrust laws as "a comprehensive charter of
economic liberty aimed at preserving free and unfettered competition is the rule of trade."
(Mankiw, 2021).

4.2 Regulation:

The government regulates monopolist behavior to address the issue of monopolies. Natural
monopolies, like water and power corporations, often use this strategy. These corporations
cannot charge any price they choose. Instead, government bodies regulate the prices. In a natural
monopoly, the marginal cost is lower than the average total cost due to lowering average costs. If
regulators compel a natural monopoly to charge a price equal to marginal cost, the price will be
lower than the average total cost, resulting in a loss for the monopoly (Mankiw, 2021).
Regulators can deal with this difficulty in several ways, none of which might be perfect. One
alternative is to subsidize the monopolist. The authorities bears the losses from marginal-price
pricing. To fund the subsidies, the authorities ought to rely on taxation, which leads to
unproductive spending. Alternatively, government may also allow the monopolist to fee a price
greater than marginal cost. If the regulated fee equals the common total price, the monopolist
will benefit no monetary advantage. However, average-cost pricing reasons deadweight losses as
the monopolist's charge no longer represents the marginal cost of producing the object. Average-
fee pricing acts as a levy on the goods bought by way of a monopolist (Mankiw, 2021).

4.3 Public Ownership:

The authorities's third approach for dealing with monopolies is public possession. Instead of
controlling a private company's inherent monopoly, the authorities can manipulate it
immediately. Economists prefer private ownership over natural monopolies because of the
motivation to manage costs. Private owners want to reduce expenses in order to increase profits,
and if managers fail, owners can change them. Customers and taxpayers suffer when government
bureaucrats monitoring a monopoly perform badly, leaving them with only the political system
as a redress. Bureaucrats may oppose cost-cutting initiatives, making the profit motivation more
dependable than the voting booth in assuring well-run businesses (Mankiw, 2021).

V. CONCLUSION:
In conclusion, the dynamics of pricing techniques in monopoly markets, specifically price
discrimination and single-rate monopoly, are vital in a corporation's force for long-time period
profitability. The execution of those initiatives necessitates a cautious balance among
maximising earnings and ensuring consumer welfare. Innovation, operational efficiency, and
strategic brand creation emerge as common threads critical for long-term success, regardless of
price strategy. Public policy interventions, justified with the aid of the want to avoid exploitation,
promote innovation and protect customer welfare, serve as a regulatory framework in the
monopolistic environment. Public coverage is to make certain a truthful and competitive
economic system via striking a stability among enabling companies to prosper and safeguarding
consumer interests.