Sometimes in an economic environment, a situation occurs, in which a single individual or organization has an almost total control over the industry of a specific product or service. In such a scenario, it has the ability to determine the rules and regulations of the industry,…
very difficult due to the strong hold of the said organization this type of market existence, in which the firm has the strongest hold over the industry, is called monopoly. (McConnell, Brue, 2006).
There are two types of monopolies. Natural Monopoly exists when an organization possesses a strategic control over assets or production, operations and/or distribution systems pertaining its particular product or industry. (Brakman, Heijdra, 2004). For example, an organization providing the government with the nuclear power plant energy would have a natural monopoly since it is performing a task which is highly strategic in nature.
On the other hand, Coercive Monopoly refers to any other type of monopoly that has been acquired deliberately. It includes erecting barriers for potential competitors to enter into the business, acquiring patents, mergers & acquisitions with the competitors to engulf competition, etc. (Brakman, Heijdra, 2004).
Firms often tend to achieve monopoly through erecting barriers for potential competitors to enter the market. These barriers may be of three types. The “economic barriers” include economies of scale (largely reducing costs through mass, full scale production), large capital requirements, technological superiority and absence of close substitute products. The “legal barriers” refer to intellectual property rights including patents, trademarks, copyrights, etc. which provide an organization with a strong edge over the competitors. Firms may also indulge in “deliberate action” including lobbying the government and concerned parties, collusion, etc. to acquire monopoly. (McConnell, Brue, 2006).
The barriers like high liquidation costs that make it difficult for a firm to leave a business may also keep them from entering it enhancing the monopolistic effect of the already existing firm in the market. (McConnell, Brue, 2006).
Firms may acquire patents in order to secure their monopolistic presence. They may come up with any ...
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The author of the essay comments on the concepts of micro economics and macro economics. To be precise, the author provides the idea of Samuelson, who states that economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.
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