Question

Provide an example of a real-world industry or market (current or historical) that has not been described by another student or that is in the text that would be described by economists as a monopoly (near-pure or natural) and provide a summary of how that monopoly became a monopoly, how it maintained monopoly power, and if applicable, how it lost its monopoly power. Provide a link to your references (Do not use Wikipedia).

Answer 1

A monopoly is a market that has a single seller. This means that consumers have only one firm to purchase a good or service from.For example The Indian Railways firm is a state-owned railway transport provider that operates India’s rail network. It is one of the largest railways in the world, and is one of the world’s largest employers. Because it is the only provider of railway transport in India it operates a monopoly position - consumers have no other provider they could use to travel by train. This can be seen in the way that it operates as a ‘price setter’. That is, it can determine the prices that are charged in the market, because there are no rivals to undercut its price or make it charge a higher price. Generally, consumers and governments object to companies gaining monopoly in a market. This is because it enables the company to set prices above normal competitive rates, and to practice price discrimination. However, as the Indian Railways company is state owned it is not considered in the same way as a private company would be. Rail networks are often considered to be a ‘natural monopoly’. This is because only one provider can run a train on a given track at a given time, so naturally there cannot be competition. Some countries, such as the UK, try to avoid this by allowing companies to bid to run lines, this creates competition when the contract on the line comes to be renewed. The railway network could be considered not to be a pure monopoly as there are substitutes that fulfil the same need – such as cars, motorbikes, buses, taxis and planes. So consumers can potentially replace train travel with a different method.