Question

Monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. Monopoly typically has an unfair advantage since they are either the only provider of a product or control most of the market share or customers for the product. Although monopolies might differ from industry-to-industry, they tend to share similar characteristics. Discuss at least three (3) of these characteristics in your own words. (300 words)

Over the short term, the financial crisis of 2008 affected the banking sector by causing banks to lose money on mortgage defaults, interbank lending to freeze, and credit to consumers and businesses to dry up. For the much longer term, the financial crisis impacted banking by spawning new regulatory actions. Furthermore, some believe that commercial banks where more fragile during the crisis which made them at more risk of a bank run. In your opinion, discuss whether you agree or not and why. (300 words)

Answer 1

The most basic characteristic of a monopoly market and the primary reason behind which every firm wants to become a monopoly is price discrimination. What we mean by price discrimination is that the monopoly firm gets to decide the price at which it is going to sell its products in the market. The price can be as high as it wants if there is a need and demand for the product in the market. For eg: gulf countries may decide to choose a particular price at which they are going to sell oil to the world. Because they hold a monopoly, the world will have to buy oil at the rate determined.

Another basic characteristic is unique goods and ideas. By this we mean is that in order to become a monopoly a firm or a country has to be supremely distinctive from the market. It should have a technology, a resource or an idea that they want to sell which cannot be copied or imitated by others. Apart from these, it can also be the investment which is so huge that others cannot enter into the segment. Only wih either of these, a firm can become and hold a monopoly for a longer run and can counter the competition by creating enough demand for its own product.

Lastly, another characteristic of monopoly market is high barrries to entry. Monopoly firms control over the production and the supply of the goods and because the goods they sell are distinctive they have an absolute authority over its availability. Monopoly firms have an exclusive advantage of economies of scale and thereby it becomes very difficult to enter into the market and sustain for long.