Monopoly And Oligopolies: Characteristics And Examples

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Monopoly and oligopolies: Characteristics and examples

Monopoly

A monopoly has its etymological origin of the Greek monos ‘one’ and Pōléin ‘sell’, is a situation with a single product or economic agent that produces a good or service for which there are no substitute goods that can compete, and that is protected by a legal privilege situation that prevents other companies from marketing said good or service.

Characteristics of a monopoly

1. There is no substitute good that can compete
2. There are barriers to the competition

There is no substitute good that can compete

This is characterized by the companies that control the entire market and put in a situation almost impossible to compete, such as: the businesswoman IUSA earned the tender to sell the electrical energy meters to the CFE (Federal Electricity Commission), said concession represents a 87 % and 13 % was won by another company where the owner is brother -in -law of the owner of Iusa.

There are barriers to the competition

• Legal entry barriers: This type of monopoly is characterized by being legal and have a government support through concession or franchises. To exemplify this situation, we will use Telmex as an example. Telmex in the legal sense has 50 % of the market, but the economic sense, using its entire interconnection potential is positioned with 96 % of the market. The interconnection is what the competitors pay to Telmex for using their infrastructure, because it is the only one to set those costs, raising them and thus eliminating the competition. In other words: if his telmex is doing well, if the competition is doing well, he also wins.
• Natural barrier: It is when company can provide a good or service at the best price, these monopolies are for economic and technical reasons, this natural barrier becomes so high that it makes it impossible to enter competition, it is characterized by being the government and especially in services in services public who owns the greatest number of natural monopolies. South Anahuac University Administration and Business Management Nicolas del Campo Lozano Microeconomy
• Legal barrier: This type of monopolies have a legal support in concessions granted by the Government, licenses to offer a good or service, franchises or by copyright.

These barriers legally prevent the entry of powers, which implies that they always go hand in hand with the State, this type of policies are called protectionism and is carried out to protect a national industry, although in Mexico it has been seen that it has been used in an unusual way in the medicine market; While it is clear a company has the patent to produce and market an X product, which one would think that this is the legal barrier, but no, the laws settled in such a way that suppliers will monopolize, in Mexico the business of the business of the medicines will connect in marketing companies plus non -laboratories.

Pricing strategies

• A monopoly the fixed one of the single price and amount of production by analyzing the ratio of the price and marginal income.
• The demand curve of a monopoly is the market demand curve, and the marginal income of a single -price monopoly is lower than the price.
• A monopoly maximizes its benefits when generating the production in which marginal income is equal to the marginal cost (im = cm), and charging the maximum price that consumers are willing to pay for that production.
• A single price monopoly charges a higher price and produces a lower amount than a perfectly competitive industry.
• A single price monopoly restricts production and creates an unrecoverable loss.

Marginal income and elasticity

The elasticity of the demand for a good and the marginal income of a single -price monopoly are related. The elasticity of demand can be of three types: unitary, elastic or inelastic.

Monopolies regulation

A natural monopoly has to tell the regulation, although it offers a lower price it is limited to a production number, for which prices could rise significantly, and that is reduced by competition and competition is not only offering less prices if not also the development of better products and services. That is why in Mexico the State has a tool to be able to regulate, this is the COFECE (Federal Economic Competition Commission).

Oligopoly

DEFINITION: It is a type of market controlled by few suppliers, this means that the market is concentrated in a small number of companies, an example of this is the soda industry where 10 companies predominate and therefore increased it in what what compete is the price to be substitute goods.

In an oligopoly the pricing is determined by a strategy, since each decision that is made affects the other members of the oligopoly, these strategies can be of healthy competition or morally despicable. Examples of these strategies is pricing, since competition is adjusted to these conditions, the possible movements of the competitor must be had and foreseen, there are many examples of this type of oligopolies for example:

The soda industry is more competitive, some companies make strategic smoothes with other companies and that companies commit to market only their brand’s products, some offer refrigerators to their customers and thus offer a more attractive product to the consumer and thus leaving out leaving out From competition to refreshters that do not have that financial capacity. This on the one hand is reflected in a consumer gain directly but although it is true with the sweeping that the oligopolies form generate a loss to the consumer since their offer is only limited to what these companies can offer.

conclusion

The study of monopolies and oligopolies is of the utmost importance since many of them dominates the market, that is, almost any analysis, projection of a company should be considered leading companies (monopolies) since they are the ones who supply, market, produce or They simply have a relationship. Suppose we have a skate shirt company with modern images, to determine the market price you have to analyze costs (fixed and variable), but not only that should be seen the price of similar products and in that search we will end up with some Competitor who dominates the market like Nike, Vans, etc. Now if we decide to sell a product online, we will have to resort to generating a platform that gives us the tools for that objective; We will realize that it is not viable and we will resort to existing ones such as: Mercado Libre, Amazon, etc. And those platforms through algorithms will decide what to sell or to whom to give a greater promotion, although we think of a free market, it is not, since they are subject to exhibition in a discretionary way; Who pays has "right" to be promoted. Monopolies and duopolies must be studied by everything we already mention that it represents, they are undoubtedly the one who governs the market.