1. 0 Introduction
In the improvement of doing this project, I am aware that microeconomics is the study of individual financial products where we will put it to use inside our daily lives. We will learn how to meet up with the organization goals with limited resources with the better understanding of the economic ideas and theories. Besides that, we can also learn basic economics and also have a better understanding of the economics of the marketplace place. Through this report, I can understand more about the monopoly market, how it works and its characteristics from my research. Out of this research, I've a good understanding on the monopoly on the market framework. Besides that, this research also educated me to distinguish the four market composition in terms of its characteristics which are totally different in one and another.
2. 0 Explanation of monopoly
According to Hashim, A. (2001) Comprehensive Economics Guide. 2nd ed. Singapore: Oxford University or college Press Pte Ltd, p. 84, Monopoly is an industry composed of a single seller of a product with no substitutes and with high barries to entry. A monopoly electricity exists when a single firm controls more than 25% of market.
3. 0 Characteristics of monopoly
3. 1 One vendor and a big amount of buyers
3. 1. 1 A monopoly is accessible when there is merely one seller of a product. For instance, The Tenaga Nasional Berhad(TNB) has a monopoly of the electricity supply of Peninsular Malaysia. All properties and shops who get source from Tenaga Nasional Berhad(TNB) should pay their electricity charge.
3. 2 Product has no close substitutes
3. 2. 1 The product sold with a monopolist should be no close substitutes. There are no other electricity provider in Malaysia. The only supplier is the Tenaga Nasional Berhad (TNB). There is no competition for their product.
3. 3 Price maker
3. 3. 1 In the perfect competition, there will be no single company can influence the price and this is called price taker. The Tenaga Nasional Berhad(TNB) will have the energy to choose and control the purchase price in the market since there are no competition around.
3. 4 Restriction on the admittance of new firms
3. 4. 1 Inside a monopoly market, there will be tight barriers to the admittance of new organizations and the barriers of access are natural. A monopolist faces no competition because of barriers to access.
3. 5 Advertising
AAdvertising in a monopoly market depends upon the merchandise sold. If the merchandise are luxury goods such as imported items then your monopoly will require some advertisement to promote the consumers on the goods. Local public energy such as the electricity by Tenaga Nasional Berhad (TNB) need no advertisement since the consumers know from where you can obtain such goods and they are the only organization who provides electricity.
Super-normal profits
Monopolies can maintain super-normal earnings in the long run. Much like all firms, gains are maximised when MC = MR. Generally, the amount of profit depends after the degree of competition in the market, which for a 100 % pure monopoly is zero. At income maximisation, MC = MR, and end result is Q and price P. Given that price (AR) is above ATC at Q, supernormal gains are possible (area PABC).
With no close substitutes, the monopolist can derive super-normal revenue, area PABC.
A monopolist without substitutes would be able to derive the best monopoly electric power.
4. 0 Differentiation of the features of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Existence of
Non-Price
Competition
Examples
Perfect Competition
Very many
Unrestricted
Homogeneous
(undifferentiated)
None
Cabbages, carrots(these approximate to perfect competition)
Monopolistic competition
Many/
several
Unrestricted
Differentiated
Some,
especially by
advertising.
Builders, restaurants
Oligopoly
Few
Restricted
1. Undifferentiated or 2. Differentiated
1. Some, such as
on-time
delivery.
2. Extensive
1. Cement
2. Vehicles, electrical appliances
Monopoly
One
Restricted or completely blocked
Unique
Advertising of
firm's "image
Many prescription of drugs,
local water company
4. 1 Range of firms
4. 1. 1 An ideal competition has large numbers of buyers and vendors. Organizations are price taker because the number of a single retailer sells in market is so small set alongside the overall industry. Besides that, the price is always constant where the retailer can only determine the quantity to be sold rather than the price of selling of a product. A good example of the perfect competition is the duck manufacturers. The price tag on the duck on the market is still will depend on the demand and supply. The sellers can't ever control the price of the duck in the market even if they have high production, it will not affect much for the reason that industry.
4. 1. 2 Within a monopolistic competition, there are a big number of vendors. The number of firms can be found in a monopolistic competition market is less than perfect competition. Because of the size of every organization which is small and hence, no individual company can affect or control the market price. Therefore, each firm follows an independent price-output insurance plan. The organization that produces toothpaste is in the monopolistic competition where there are extensive brands of toothpaste in Malaysia such as Darlie, Colgate and Polleney. They can never impact or control the purchase price in of the products in the market.
4. 1. 3 In an oligopoly, the number of businesses is small but the size of the firms is large. The market share of each organization is large enough to dominate the marketplace. A few firms control the entire industry of any oligopoly. Including the petroleum companies namely Shell, BHP, Caltex. They are large firms who have market shares which in a position to dominate the market.
4. 1. 4 Under monopoly, there is merely one owner of a product and large number of buyers can be found. A monopolist is a cost manufacturer since there is merely one seller and no rival and it has the power to control the purchase price in the market. Among the examples of a monopoly is the Tenaga Nasional Berhad (TNB) where their company materials electricity for the whole Peninsular Malaysia.
4. 2 Liberty of Entry
4. 2. 1 There is certainly unrestricted independence of entrance and exit of the businesses from the industry in the perfect competition and the monopolistic competition. A firm can easily type in the marketplace and exit the marketplace anytime they wish to. No restriction is enforced. If any organization who want to open a fruits farms and operate the business enterprise if he/she gets the necessary factors of development ( land, labour and capital) he/she can always begins the business even there is a lot of berries farms are present.
4. 2. 2 In an oligopoly market, there are many barriers to admittance. Although similar to a monopoly, the firms within an oligopoly will limit new firms to enter the marketplace. The types of barriers to entry are economies of scale, forces to merge, ownership of patents and copyrights to name a few. This is illustrated briefly by the petroleum industry in Malaysia where Mobil, Shell, Petronas and Caltex which already can be found in the market and they control the marketplace. The probabilities for a fresh organization to be made in the petroleum industry in Malaysia is suprisingly low because of the huge capital investment that they need to have a position in the market.
4. 2. 3 Beneath the monopoly market, there will be restricted independence of accessibility and there are legal constraints that limit the entrance of new businesses in to the industry. Hence you will see no competitors and competition for firms who are in the monopoly market. Telekom Malaysia (TM) is a good exemplory case of a monopoly since there is merely one home cell phone service in Malaysia which is Telekom Malaysia (TM) and not any other companies.
4. 3 Dynamics of product
4. 3. 1 The firms in a perfect competition must sell homogenous products. Within the perfect competition structure, buyers cannot differentiate products in conditions of quality, packaging, colour and design being that they are indistinguishable. Furthermore, the company cannot charge a different price for the same product which exist in the market. A classic exemplory case of this is actually the telecommunication service provider in Malaysia which are Digi, Maxis and Celcom. They offer customers with the same product on the market but potential buyers cannot identify their products no subject how, being that they are all the same.
4. 3. 2 The monopolistic competition market offers differentiated products which are not identical. Each organizations will have their own solution to differentiate their products from other sellers to get more customers or consumers. Their products can be different in conditions of the design, advertising, branding, and labeling. For instance, whenever a perfume is perfectly packaged in a pack and labeled as 'best perfume' then this product is at monopolistic competition.
4. 3. 3 Products in the oligopoly may be differentiated or undifferentiated. In Malaysia, the exemplory case of oligopoly market are petroleum and cars where petroleum is equivalent while autos are differentiated products.
4. 3. 4 Under monopoly market, the products produced has no close substitutes or unique. Tenaga Nasional Berhad (TNB) is one of the example of monopoly who is the electricity company from local consumer utility which has no close substitutes but if the buyers can find every other way to get electricity then this product is forget about in monopoly and monopoly cannot exist when there is a competition or any substitute product.
4. 4 Life of Non-price Competition
4. 4. 1 Inside the perfect competition, the role of non-price competition is insignificant since many sellers sell the products at a fixed price and furthermore, the merchandise are identical. On the other hand, non-price competition can also be referred as selling cost which is the expenditures that used to boost the sale of the merchandise of a company. In perfect competition, firms cannot control the purchase price and their goods are homogenous, so there is absolutely no selling cost. For instance, we do not see any advertisements in the television or any other advertising about a product that does not have any brand.
4. 4. 2 Under monopolistic competition, some non-price competition can be found especially in advertising when organizations compete for their products and not the price tag on the product. Companies should use various methods such as advertisements and campaign to draw in more customers to buy their products.
4. 4. 3 The firms will try to capture the market through better marketing campaign and producing high quality products to the clients instead of minimizing the price. This is because when one company reduces the price tag on the merchandise other firms will observe the same approach. In fact, the oligopoly companies compete with each other through non-price competition rather than price competition. They will try to make smarter products in terms of the product quality and variety so that this will make the organization more competitive as compared to other firms.
4. 4. 4 In a very monopoly the businesses will only advertise for their own image since there is no rival around. There is merely one seller for that product, so companies do not really need to advertise much to improve the sale of the product. Customers will definitely know that firm supply this kind of product plus they can only just get such product out of this firm.
5. 0 Summary and recommendations
A monopoly is the marketplace where there is merely one retailer and many customers. Furthermore, the merchandise produced has no close substitutes to make sure they are the price maker or the they have the power to regulate the price in the market. There is also the limitation on the accessibility of new firms to make it does not have any rival. Hence, they advertise will depend on the merchandise sold. A monopoly is only going to can be found when it complies with all the characteristics stated.
