Introduction To Market Structures Economics Essay

Steve Ballmer, current CEO of Microsoft, one time said I dont cognize what a monopoly means until person Tells me. There are assorted definitions of monopoly depending on the positions and beliefs of others. A simple definition of monopoly can be defined as a signifier of concern construction which involves a manufacturer, normally a individual manufacturer or sometimes a group of manufacturers working together. In a monopoly, the market is normally controlled by the providers or in this instance the manufacturer. A monopoly involves a individual marketer who sells merchandises which have no close permutation or alternate and normally has a really high entry and issue barrier. This means that the Numberss of purchasers of the marketer ‘s merchandises are normally really big. For illustration, in Malaysia, the state ‘s electricity supply is controlled by a individual company, Tenaga Nasional Berhad ( TNB ) which means that they are the lone bing company in this market and they are besides the 1 who controls the monopoly. We as the citizens in Malaysia, have to pay our monthly electricity sweeps which makes us the purchasers. There are a few factors and cardinal elements that define whether a concern is categorised as a monopoly.

Specifying Monopoly

A monopoly is a market construction which consists of a individual marketer or manufacturer for a certain merchandise but with the being of a big figure of purchasers. In a monopoly, the concern normally is the lone dominant manufacturer which means that there is merely one marketer of that certain merchandise that normally has no close permutation or any replacing and it has a really high entry and issue barrier. For illustration, in Malaysia, the electricity supply is controlled by a individual company, Tenaga Nasional Berhad ( TNB ) and it represents the state ‘s merely provider for electricity. Bing the citizens in Malaysia, we are required to pay our monthly electrical measures without any surrogate options and therefore doing us stand foring the big figure of purchasers. There are a few features that explains what defines a monopoly.

Features of Monopoly

In a monopoly market, there is normally a individual marketer that is in control of the market. A individual marketer in this context means that the marketer may be an single or may be as a group and are in charge of the finding the monetary value for the merchandise. Using Tenaga Nasional Berhad ( TNB ) as the illustration once more, a individual marketer means that there is no close permutation or option to that beginning of merchandise. TNB is the merely provider for electrical power in the state and there are no similar companies that are viing against them. This means that TNB, who produces electricity, has no competition that may present a menace to them. Therefore, they are the dominant market for electricity in the state. When a monopoly market exists, there is ever the larger figure of purchasers that exists compared to other markets. In a monopoly, the merchandise is made by a individual marketer and it is the lone dominant 1 in the market and therefore making a high demand for that merchandise. Therefore, there will be a big figure of purchasers in a monopoly market.

In a monopoly market, there is besides the limitation of entry of new houses. These limitations prevent any new entries of new houses in the market. A monopolizer faces no competition because of the barriers of entry. These barriers of entry are in either in the signifier of natural limitations or legal limitations. Some illustrations of these limitations are patents and right of first publications, high start-up costs, and authorities licence and franchise. With the being of these limitations, monopolies are able to stay dominant in the market.

A Key Characteristic of Monopoly

Therefore, a monopoly market means that the market supply curve is indistinguishable to the individual house ‘s supply curve and that the market demand curve is indistinguishable to the house ‘s Average Gross ( AR ) curve.

* The figure below shows the monopoly curve.




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Types of Monopolies

One of the features of a monopoly house is the being of the barriers to entry which is categorised into two different monopolies. The first type of monopoly is a natural monopoly and the 2nd 1 is termed as a legal monopoly or frequently called as a government-created monopoly.

Natural Monopoly

A natural monopoly is a distinguishable signifier of monopoly that exists when there are high fixed costs of distribution. This means that a natural monopoly exists when there is one house that is able to bring forth at a lower monetary value, compared to two or more alternate houses. A natural monopoly can originate due to economic systems of graduated table where the larger a house becomes the lower the cost of production will be for the house. A natural monopoly arises without the being of authorities intercession.

Government-Created Monopolies

A government-created monopoly refers to the type of monopoly that arises due to authorities actions. Government-created monopolies occur when the authorities creates monopolies in order to forestall other houses from come ining into the market. With similarities to the barriers to entry, government-created monopolies have a few features every bit good. These features are the authorities franchise which explains the sole rights to a house to let them to sell certain goods and services in certain countries, authorities licence which refers to the licence or permissions that are needed by houses to run any sort of concern, a patent which talks about the sole rights to the production of an advanced merchandise and in conclusion, the right of first publication which explains the sole rights that are given to houses utilizing stuffs that are do non arise from them.

The last facet of a government-created monopoly is the control over natural stuffs. For illustration, a good type of monopoly is the DeBeers which is an bing company that deals with diamonds. DeBeers is the lone bing company that controls over 80 % of the universe ‘s natural diamonds which makes competition impossible.


Monopolies are a concern construction that can be defined as a concern that involves a individual marketer and a big figure of purchasers. The belongingss within a monopoly explains that in a monopoly market, the merchandises that are produced by a house have no close permutation or in other words, surrogate options, and have a high entry and issue barrier. The barriers are those that prevent any signifier of competition or competition towards the dominant house. Within a monopoly market, there are a few features besides that explain the net incomes that are obtained with connexion to the grade of competition faced.

3.0 Introduction to Market Structures

A concern market is made up assorted types of concern that operate together either in cooperation or in competition. These market constructions are in the signifiers of concerns that either a big concern or little groups of concerns. For case, there are four types of basic market constructions such as the perfect competition, monopolistic competition, oligopoly and a monopoly. These are market constructions that are defined by the types of operations that they are involved in and frequently have certain distinguishable characteristics about them.

3.1 Perfect Competition

A perfect competition is defined as a market which has many purchasers and Sellerss. In a perfect competition, the merchandises that are sold are normally of the same sort and therefore making a tight competition among houses. In a perfect competition, Sellerss are able to easy and freely enter or go out the market. Unlike a monopoly which has the barrier to entry, a perfect competition allows marketer or manufacturers to come in into the market and vie with either bing houses or other infant houses. A good illustration of a perfect competition will be agricultural husbandmans such as vegetable husbandmans or farm animal husbandmans. In agribusiness, competition is normally tight with other persons or groups bing in the same type of activity. The entry of house into the field is comparatively easy due to small barriers. Within a perfect competition, the merchandises that are produced and sold are normally likewise and are frequently similar to those of the rivals. Another feature of a perfect competition is the function of non-price competition. With many houses viing against each other, bring forthing the same or similar merchandises and selling to the similar group of clients, merchandises are frequently sold at a standard cost therefore doing it undistinguished.

3.2 Monopolistic Competition

Monopolistic competition refers to the market construction which there is a big figure of little Sellerss selling different merchandises unlike the perfect competition which involves the same or similar merchandises. These merchandises that are sold are close replacements or in other words, surrogate options that may replace a primary option. Normally in a monopolistic competition, Sellerss have an easy entry and issue from the market. A monopolistic competition being on its ain has similar facets that are found in both a monopoly and a perfect competition. For case, in a monopolistic competition, there are besides big Numberss of Sellerss and purchasers. The difference is in a monopolistic competition, there are many little houses and therefore these little houses are non able to act upon the market monetary value for the merchandises or services. Another facet is the easy entry and issue of a market but due to the difference in merchandises, come ining into the market of a monopolistic competition is non every bit easy as that of a perfect competition. A house that wants to come in into the market will hold to make a new label that is non being used. The last facet of a monopolistic competition is the non-price competition. Most competitions will affect their pricing but within a monopolistic competition, pricing is n’t the chief aim for competition. Due to the fact that within a monopolistic competition market there are assorted trade names and types of merchandises, the competition is much more concentrated on the merchandises sold instead than the monetary value that is set. This is because the houses in a monopolistic competition will hold their ain monetary value policy that is needed to be met. Thus, rivals will happen ways to non merely attract clients but to besides convert them to purchase their merchandises.

3.3 Oligopoly

An oligopoly is a market construction where there are a few houses selling either standardized or different merchandises. Similar to that of monopoly, oligopoly besides has a tight limitation towards the entry of houses into and out of the market. In an oligopoly market, entry into the market is really hard or close impossible and because of that, some houses are able to gain unnatural net incomes. Similar to a monopoly, oligopoly markets are besides allowed to enforce barriers with the intent to command extra production of end product, which is non profitable for oligopolistic houses.

There are a few characteristics within an oligopoly which different from a monopoly. As an illustration, in a monopoly, there is merely a individual dominant house that controls the market and besides the monetary value. But in an oligopoly, there are a little figure of houses which are large. A few of these houses are those that control the overall industry in an oligopoly market. Normally in an oligopolistic market, houses depend on each other when the market psychiatrists. An oligopoly is besides non restricted like perfect competitions and monopolistic competitions. The merchandises that are produce are both either standardized or differentiated which means that the merchandises produce may be similar to those in other houses or different from others.

Unlike monopoly, there are a figure of houses within an oligopoly and this encourages houses to be cognizant of competition and to take note of the alterations made by the rivals. Bing similar to a monopoly, the oligopoly market besides has a few facets that portion the same apprehension and significance. The difference between an oligopoly from a monopoly is their non-price competition. The non-price competition in an oligopoly is split into two types which are the choosing for a monetary value cut and the opting for a non-price competition.

3.4 Monopoly

A monopoly is a concern construction that has a individual marketer of a merchandise that has no close permutation or options. In a monopoly, the merchandise that is green goods may be produced by merely one beginning and has no surrogate options due to the entry barriers. A monopoly market is made up of a individual dominant house that is in control of the market and pricing. Therefore, with no possibility of making a close permutation, there are certain limitations for come ining or go outing the market.

In a monopoly, the dominant house is in control of the pricing of the merchandise that is sold. For illustration, in Malaysia, the electricity measures and duties are set by Tenaga Nasional Berhad and so implemented to the citizens. Normally in a monopoly, the entries to the market of new houses are restricted by a few limitations to guarantee that there will non be many rivals or challengers within the market.

3.5 Decision

There are many types of concerns that exist that are viing with each other. There are those that sell the same merchandise and those that are aiming the same group of people. In concern, there are a few market structures that exist which are the monopoly and oligopoly, the perfect competition and monopolistic competition. The characteristics of a perfect competition and a monopolistic competition are those that are somewhat similar. Within a perfect competition, the concern is normally in big Numberss where there are similar or standard merchandises produced, which is similar to that of a monopolistic competition. Last, there are the oligopolistic market and the monopolies which have certain similarities but besides posses certain differences. For illustration, in a monopoly, the concern is normally dominant and the house is the lone one in control of the market. Therefore, there is no close replacement and no competition.