MONOPOLY

Monopoly

Monopoly

Monopoly

The monopoly is a situation in which a single supplier is selling a product or a service given to a multitude of buyers. The application of this definition depends on the definition used for good and for the market. If using a narrow definition, monopoly is everywhere. For example, every grocery store has a monopoly on the sale of salt within 50 meters of his shop (the case of local monopoly), or a monopoly Renault cars Renault, which is not very useful to the analysis.

In reality, there are only two cases where this situation deserves a special theoretical analysis;

- If the conditions of production of that product or service are such that competitive situation, only one supplier can survive in this market (the case of natural monopoly).

- If the supply of that product or service to these clients is prohibited, either by the State (if the legal monopoly) or by coercive measures up to the offerer.

By abuse of language, the term monopoly is also used to describe a situation similar to the previous definition, in which one company dominates a market where competition exists, but remains marginal. Then we reserve the term oligopoly to a situation where a small group of providers share a market share close.

Economic theory considers that monopolies are harmful to consumers, because in such a situation, the offerer is able to impose only the sale price of the product without being attentive to quality. It is then in a situation known as price - maker, while a company facing the competition underwent a situation of price - taker and is forced to innovate to defend its position. Most economists conclude that the government must fight monopolies and regulating natural monopolies (Binger & Hoffman, 1998, 12-35).

Role of the elasticity of demand in driving the price / quantity choices of a monopolist

The monopoly sets the price while a firm in a situation of perfect competition takes as given the price. If the monopoly is facing a consumer demand that contracts when the price level raises, the monopoly's interest to reduce its product offering to sell at a higher price. The monopoly will restrict its offering to the point where the gain in price increase per unit sold it performs will be compensated by the loss of sales volume.

In a competitive market, competition among firms has the effect of equalizing the selling price at marginal cost of production, to say the cost of the last unit produced. The monopoly is not subject to competitive pressure, it is able to sell their products above marginal cost, thereby obtaining profits higher (Blinder and William, 2001, 178-212). Unlike an oligopoly or competition, if the monopoly is the only one where it is immaterial whether the monopoly sets its price and sales volume in the market.

In a competitive situation, the price is determined by the market, the company produces as the sale of an additional unit of property brings in more than it costs ...