Notesale: Turn your study into money

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Monopoly= one firm in the industry
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g
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A rail company
can have monopoly in 2 cities but not all over the country and not over all form of transport
i
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people can travel by air or bus instead
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Key characteristics=
-One firm
-freedom of entry is restricted or completely blocked
-nature of product is unique
- Example include a local water company, many prescription drugs
-downward sloping demand curve->demand is relatively inelastic at each price (can raise its
price due to no consumer alternative, consumer can either have the good for the price they
charge or not have the good at all
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e
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Barriers to entry; for a firm to maintain a monopoly there must be barriers to entry, [barriers
also exist under oligopoly] they must be high enough to block new firms entering a market
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Economies of scale; if the monopoly firms costs keep falling and output satisfies
the whole market-> industry may not be able to support more than one firm=
natural monopoly (a situation where long run average costs would be lower if an
industry were under monopoly than if it were shared between two or more
competitors) more likely if market is small
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Therefore;
a larger firm can charge lower prices due to them being already in an economy of
scale and can drive newer firms out of the market

ii
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E
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large pharmaceutical firm
produces a large range of drugs etc and other areas of product range can use same
research, transport facilities etc-> lower costs make it difficult for a new single
product entrant to be successful in the market as large firm can undercut its prices

iii
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Companies with strong brand image= Coca Cola, Sellotape
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Lower costs for an established firm; established monopoly is likely to have
developed specialised production and marketing techniques and also be aware of
cheaper suppliers and have access to cheaper finance
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v
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g
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Also
if a firm controls where the product can be sold, it can prevent rivals gaining access
to consumers e
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Walls ice cream-> used to supply freezers to shops under the
condition that the exclusively sold Walls ice cream
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Legal protection; monopoly firm may have patent on essential processes by
copyright e
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most new medicines developed
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Mergers and takeovers; monopolist can put in a takeover bid for any new entrant,
the sheer threat of takeovers may discourage a firm for entering a market
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Aggressive tactics; established monopolist can sustain losses for longer ad can
engage in a price war to prevent new entrants

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