Monopoly Competition Monopoly (from the greek “mónos”, single, and “polein”, to sell) is a form of the market structure of imperfect competition, mainly characterized by the existence of a sole seller and many buyers. This kind of market is normally associated with the entry and exit barriers. In economics, a monopoly refers to a firm which has a product without any substitute in the market. Therefore, for all practical purposes, it is a single-firm industry. A monopoly is a firm that supplies all of the output in a market.

1. Monopoly Competition
Unit 22
Instructor:
Atta Hussain Syed

3. Market structure
 Market structure is the interconnected characteristics of a
market, such as the number and relative strength of
buyers and sellers, degree of freedom in determining the
price, level and forms of competition, extent of product
differentiation and ease of entry into and exit from the
market.

4. Monopoly
 Monopoly (from the greek “mónos”, single, and “polein”, to
sell) is a form of market structure of imperfect competition,
mainly characterized by the existence of a sole seller and
many buyers. This kind of market is normally associated with
entry and exit barriers.
 In economics, a monopoly refers to a firm which has a product
without any substitute in the market. Therefore, for all practical
purposes, it is a single-firm industry.
 A monopoly is a firm that supplies all of the output in a
market.

5. Characteristics of Monopoly

6. Single producer/seller and Many
Buyers:
 This is one of the main features of monopoly. Here, the
monopolist is the only producer of his product.

7. No Close Substitutes
 There shall not be any close substitutes for the product
sold by the monopolist. The cross elasticity of demand
between the product of the monopolist and others must
be negligible or zero.

8. Entry Restrictions/Barriers
 Barriers to entry are the obstacles or hindrances that make
it difficult for new companies to enter a given market.
 These restrictions can be of any form like economical,
legal, institutional, artificial, etc.

9. Price Maker
 The monopoly market are fully control and produce the
goods and service by one single monopolist. So,
consumers do not have choice to choose goods from
other company or industries. Monopolist can maximize the
profit in the long run.

10. Types of Monopoly

11. Natural Monopolies
 A natural monopoly is a distinct type of monopoly that
may arise when there are extremely high fixed costs of
distribution, such as exist when large-scale infrastructure is
required to ensure supply.
 Barriers to Entry: Economies of scale that are available to
incumbent firm.
 For Example:

12. State/Public/Govt. Monopolies
 The form of monopoly in which a government agency or
government corporation is the sole provider of a particular
good or service and competition is prohibited by law
 This covers industries where the state has full ownership.
Notable examples include postal services, utilities, television,
and the supply of money.
 The state-owned petroleum companies that are common in
oil-rich developing countries (such as Aramco in Saudi Arabia
or PDVSA in Venezuela) are examples of government
monopolies created through nationalization of resources and
existing firms. The United States Postal Service is another
example of a government monopoly.

13. Un-natural Monopolies
 The un-natural monopolies which are a combination of
natural and state monopolies. They are natural
monopolies in the traditional sense but are re-enforced by
the state. Patents are a clear example of an unnatural
monopoly.

14. Bilateral monopoly
 The market structure consists of a single buyer
(monopsony) and a single seller (monopoly). Depending
on who has greater negotiation power there can be
different outcomes.
 Example: A labor union (a monopolist in the supply of
labor) faces a single large employer in a factory town (a
monopsonist).

15. Causes or Sources of Monopolies
 High Costs Scare Competition: Railroads are a well-known
example.
 Low Potential Profits Are Unattractive to Competitors:
When there are low profits, the monopolist’s position is
maintained as competitors are dis-interested. Both Apple
and Google invested billions in developing their operating
systems in order to compete with Microsoft. (A lion would
not waste its effort pursuing beetles. They are too small
and not worth the energy in catching.)
 Ownership of a key resource: For example, if there is only
one diamond mine in the country, the business that owns
it will be able to achieve a monopoly. This is how De Beers
controlled the diamond industry throughout the 20th
Century.

16. Patents
 A patent provides you with the right to prevent others
from making, using, selling, or offering for sale, the same
or identical invention.
 A private firm creates a new product. Nothing else is
available to the consumer. So this drug has a monopoly
within the market. However, this product is given an
artificial monopoly through the patent system. For a
certain period of time, this will be the only product
customers can buy.
 Example: iPhone

17. Restrictions on Imports
 Import quotas, tariffs, and other trade restrictions can limit
domestic competition and be a cause of monopoly. If
cheaper foreign competition is unable to enter the market,
there are fewer pressures on domestic companies.
 In the US for example, only drugs approved by the Food
and Drug Administration (FDA) can enter. This stops
perfectly safe drugs from Europe coming in and serving as
a competition to the domestic monopoly.

18. Baby Markets
 During the infancy of a market, the first entrant will be able
to establish an initial monopoly position. This is because
they are the first company in the market, without
competition.

19. Geographic Markets
 Geographic monopolies can be characterized by the sole
presence within a local market.
 For example, there may only be one restaurant in the local
town.
 Other examples of local monopolies may include a petrol
station that is the only supplier on the motorway. Whilst it
does not have a monopoly over gas, it does within the
bounds of its location.

20. Advantages and Disadvantages of
the MONOPOLY

21. Advantages of monopoly
 Monopoly avoids duplication and hence avoids wastage of
resources. (We have to understand that duplicate and fake
products are a real problem in many countries).
 A monopoly enjoys economies of scale as it is the only
supplier of product or service in the market. The benefits
can be passed on to the consumers.
 Due to the fact that monopolies make lots of profits, it can
be used for research and development and to maintain
their status as a monopoly.
 Monopolies may use price discrimination which benefits
the economically weaker sections of the society.
 Monopolies can afford to invest in latest technology and
machinery in order to be efficient and to avoid
competition.
 Source of revenue for the government- the government
gets revenue in form of taxation from monopoly firms.

22. Disadvantages of monopoly
 Poor level of service.
 No consumer sovereignty. A monopoly market is best
known for consumer exploitation. There are indeed no
competing products and as a result the consumer gets a
raw deal in terms of quantity, quality and pricing.
 Consumers may be charged high prices for low quality of
goods and services.
 Lack of competition may lead to low quality and out dated
goods and services.

23. Examples of Monopolies in
Pakistan

24.  The seven-year monopoly of the Pakistan
Telecommunication Corporation Limited (PTCL), starting
from the incorporation of the company in 1995, would
expire in December 2002 and the government has agreed
under the World Trade Organization (WTO) regulations to
lift its monopoly after 2002.
 Originally a state-owned corporation, the shareholding of
PTCL was reduced to 62%, when 26% of shares and control
control were sold to Etisalat Telecommunications while the
remaining 12% to the general public in 2006.

25.  K.Electric (K.E). Karachi is the biggest city of Pakistan and it
is also called CITY OF LIGHTS where K.Electric is the only
company in Pakistan who involved and manage all three
stages i.e.: generation, transmission and distribution of
electricity to all over Karachi,

26. WAPDA
 Water and Power Development Authority (WAPDA) has
monopoly of producing electricity. WAPDA`s Power Wing is
responsible for the planning, construction and operation of
power generation, transmission and distribution facilities
throughout the country, except Karachi

27.  Pakistan Railways is state owned transport service. It is
under the administration of federal government and its
head quarter is in Lahore. It is an important source of
transportation throughout Pakistan