The formation of a monopoly is by two extreme markets characterized by the existence of a single seller and perfect competition characterized by a large number of sellers. In perfect competition, all sellers sell homogeneous products while in the monopolistic competition, they sell different products. Therefore, the monopolist is not concerned with the effect of his actions on rivals. Essentially, oligopoly is the result of the same factors that sometimes produce a monopoly, but in a somewhat weaker form. The most important source of oligopoly is the existence of economies of scale, which give better producers a cost advantage over smaller ones.
The formation of a monopoly is by two extreme markets characterized by the existence of a single seller and perfect competition characterized by a large number of sellers. In perfect competition, all sellers sell homogeneous products while in the monopolistic competition, they sell different products. Therefore, the monopolist is not concerned with the effect of his actions on rivals. Essentially, oligopoly is the result of the same factors that sometimes produce a monopoly, but in a somewhat weaker form. The most important source of oligopoly is the existence of economies of scale, which give better producers a cost advantage over smaller ones.
Characteristics of a monopoly
Firstly, the essence of a monopoly is a market controlled by one supplier. The most vital aspect of being a single supplier is that the monopoly seller is the market with high demands of the products produced, making the monopoly a price maker. A hypothetical illustration showing the features of a monopoly is Feet-First Pharmaceutical. This firm owns the patent to Amblathan-Plus, the only cure for the deadly (but supposed) foot illness. As the only manufacturer of Amblathan-Plus, Feet-First Pharmaceutical is a monopoly with widespread market control.
Secondly, since monopolies are the only suppliers, their products are exceptional. To be the single seller of a product, however, a monopoly must have a unique product. For instance, Amblathan-Plus is a unique product. There are no close substitutes in this company. Feet-First holds the exclusive patent on Amblathan-Plus that no other firm has the legal authority to produced Amblathan-Plus. And even if they had the legal authority, the secret formula for creating Amblathan-Plus is sealed away in an airtight vault deep inside the fortified Feet-First Pharmaceutical headquarters.
Additionally, A monopoly is the only company in a market because of assorted barriers to entry. Some examples of factors that lead to a barrier to entry include government license, asset possession, patents and copyrights, and high start-up cost. Feet-First Pharmaceutical has a few of these barriers working in its favor. It has, for example, an exclusive patent on Amblathan-Plus. The government has decreed that Feet-First Pharmaceutical, and only Feet-First Pharmaceutical, has the legal authority to produce and sell Amblathan-Plus.
Barriers to entry are the legal, technological, or market forces that prevent potential competitors from entering a market. Barriers to entry include economies of scale,
control of resources, predatory pricing that intimidate the competition, and patent and copyright protection. A monopoly might also face obstacles to exiting a market. If the government deems that the product provided by the monopoly is essential for well-being of the public, then the monopoly might be prevented from leaving the market. Feet-First Pharmaceutical, for example, cannot merely cease the production of Amblathan-Plus. It is essential to the health and welfare of the public.
Also, a monopoly controls the production technology not accessible to others. This information often comes in the form of lawfully established patents, copyrights, or trademarks. While these create legal barriers to entry, they also indicate all do not share that information. The AT&T telephone monopoly of the late 1800s and early 1900s was mainly due to the telephone patent.
Etisalat is an example of a telecommunication firm operating as a monopoly in the UAE. This company has a well thought out pricing strategy that can help recover costs incurred during expansion and cover grounds in the new market. For this reason, the company uses a two-tier pricing strategy. First, they can have a low price package that can help consumers feel the presence of the company. After capturing the attention of consumers, the company can go for a rigorous model.
Task 2
A monopolistic market is one in which firms can freely enter and exit. However, these firms can differentiate their products. Thus, they have an inelastic demand curve and so they can set prices. Since firms can freely enter or exit, supernormal profits push more companies to enter the market resulting in reasonable gains in the long run.
There are various features of the market in which Haagen Daz belongs. Firstly, the number of suppliers with a small market share is high. Besides, the existing product tried to make product differentiation to add an aspect of domination over the competing products. Close substitutes were causing Haagen Daz to lose its customers. Lastly, vendors compete on issues like promotion, development of the brand, and distribution instead of price.
Product differentiation is a marketing process that has the objective of making customers perceive the product of a specific firm as unique or superior to any other product belonging to the same group, and so creating a sense of value. Differentiation does not always imply changing the product, and sometimes it is enough just by simply creating a new advertising campaign or by changing its packaging. Firms like Papa Jones and Dominos sell pizza and other commodities that are differentiated in nature. Consumers loved Dominos because their products were distinguished with the attribute of delivery. Papa Jones, on the other hand, uses unique ingredients to attract consumers.
Haagen Daz faced various challenges, including competition from rivals who produced commodities with the only difference in the minds of clients. Companies like Ben and Jerry produced fat premium ice cream while Swenson produced both the premium ice cream and opened more stores. The company also lost its customers due to the idea that the product was unhealthy.
Haagen Daz profits in the Short Run
Reviving a product
Firms like Haagen Daz can revive their products by changing the name. Renaming the brand can reverse the negative perceptions held by customers about the previous commodity. Haagen Daz can also restore its premium ice cream by being customer-centric. This strategy can help the firm understand the needs of customers through market research and planning. Another vital strategy is through streamlining of the product. Sow downs may occur as products continue to grow, leading to the sprawling brand name. The optimizing approach is essential in recovering sales and brand identification.
Task 3
An oligopoly is a business dominated by a few big companies. Oligopolies. Oligopolies can retain their place of dominance in a market due to the difficulty of entering the market by prospective competitors. The fiscal and lawful concern is that an oligopoly can obstruct new competitors, slow inventions, and increase prices, thus harming customers. Barriers to entry in an oligopoly market can be natural or artificial.
Firstly, if a market has noteworthy economies of scale that have been broken by the incumbents, new competitors are deterred. Another barrier is the network effect in which several consumers have on the value of products or services to other consumers. The existence of a strong network restricts new competitors who fail to gain sufficient numbers of consumers to establish a positive network effect. Other factors that contribute to the barrier to entry include scarce resources, which other airlines could utilize. Furthermore, Limit pricing means the incumbent firm sets a low price, and high output, so competitors cannot make a profit at that price. This is best achieved by selling at a price just below the average total costs (ATC) of potential entrants. This signals to potential entrants that profits are impossible to make. The incumbent is exploiting its Airlines can also take over a potential rival by purchasing sufficient shares to gain a controlling interest, or by a complete buy-out. As with other deliberate barriers, regulators, like the Competition Commission, may prevent this as it would reduce competition. How airlines compete in oligopolistic markets
Airlines compete in oligopolistic markets through price leadership. Firms can conspire overtly, as in the case of cartels. However, this type of behavior is prohibited in many regions of the world. An option to overt conspiracy is tacit collusion, in which companies have an undeclared understanding that restricts their struggle. Firms can accomplish this through price leadership, in which one company serves as a business leader and establishes prices, whereas other companies raise and lower their costs to match.
A monopoly industry has one firm in the market due to lack of close substitutes. This industry owes its domination position to the fact that other prospective manufactures are prevented from entering the market. Economists frequently classify company behavior into two strategies: those that can compete and whose market results are similar to that in perfect competition; or conspire, where the market result will be identical to a monopoly. When companies collude, they use limiting operation practices to freely lower production and increase prices just like a monopoly, sharing the higher returns that result.
There are perceived benefits that accrue from the United-Continental merger. The merger makes the new company dominant, facilitating its upgrade with the assurance of high prices of tickets. The increased costs of tickets ensure the company has better facilities and services for flights that go for long-distance. However, the merger did not create the benefits above. Consolidation has enhanced the negotiating position of airlines in comparison with banks. With the increased prices of fuels, the profits have reduced.
Task 4
According to the law of supply, when prices of commodities are high, their prices also increase. Price elasticity, on the other hand, measures the responsiveness of quantity supplied to changes in price. For this reason, the elasticity of supply occurs when the amounts supplied respond significantly to alteration in price.
For instance, the cost of Brazil nuts in 2017 rose due to the high demand for the commodity. The consumption of Brazil nut increased as people purchased the product because they were taking healthier food snacks. With the supply being comparatively inelastic, an increase in demand had a relatively more significant impact on the price of the nuts. Besides, the harvest of Brazil nuts has been reduced due to famine linked to the Elnino effect. The depreciation of the pound ever since the Brexit election has fallen some 13percent against the dollar. A rise in the price of the dollar of Brazil nuts led to an increase in their sterling price.
Like supply, various factors impact the elasticity of demand. First, customers do not respond to the change in the prices of different commodities in the same industry. The first factor that affects the elasticity of demand is available substitutes. For example, tea and coffee can be substituted. If the price of coffee increases and that of tea remains the same, the number of people consuming coffee will reduce. Also,
essential commodities have more inelastic demand when compared to luxury. For instance, food is a necessary commodity, whereas owning a vehicle is a luxury. An increase in the price of food does not affect its demand. Nonetheless, consumers will be more responsive to the change in the price of the vehicle. Therefore, the car has a more elastic demand curve.
Firstly, the essence of a monopoly is a market controlled by one supplier. The most vital aspect of being a single supplier is that the monopoly seller is the market with high demands of the products produced, making the monopoly a price maker. A hypothetical illustration showing the features of a monopoly is Feet-First Pharmaceutical. This firm owns the patent to Amblathan-Plus, the only cure for the deadly (but supposed) foot illness. As the only manufacturer of Amblathan-Plus, Feet-First Pharmaceutical is a monopoly with widespread market control.
Secondly, since monopolies are the only suppliers, their products are exceptional. To be the single seller of a product, however, a monopoly must have a unique product. For instance, Amblathan-Plus is a unique product. There are no close substitutes in this company. Feet-First holds the exclusive patent on Amblathan-Plus that no other firm has the legal authority to produced Amblathan-Plus. And even if they had the legal authority, the secret formula for creating Amblathan-Plus is sealed away in an airtight vault deep inside the fortified Feet-First Pharmaceutical headquarters.
Additionally, A monopoly is the only company in a market because of assorted barriers to entry. Some examples of factors that lead to a barrier to entry include government license, asset possession, patents and copyrights, and high start-up cost. Feet-First Pharmaceutical has a few of these barriers working in its favor. It has, for example, an exclusive patent on Amblathan-Plus. The government has decreed that Feet-First Pharmaceutical, and only Feet-First Pharmaceutical, has the legal authority to produce and sell Amblathan-Plus.
Barriers to entry are the legal, technological, or market forces that prevent potential competitors from entering a market. Barriers to entry include economies of scale,
control of resources, predatory pricing that intimidate the competition, and patent and copyright protection. A monopoly might also face obstacles to exiting a market. If the government deems that the product provided by the monopoly is essential for well-being of the public, then the monopoly might be prevented from leaving the market. Feet-First Pharmaceutical, for example, cannot merely cease the production of Amblathan-Plus. It is essential to the health and welfare of the public.
Also, a monopoly controls the production technology not accessible to others. This information often comes in the form of lawfully established patents, copyrights, or trademarks. While these create legal barriers to entry, they also indicate all do not share that information. The AT&T telephone monopoly of the late 1800s and early 1900s was mainly due to the telephone patent.
Etisalat is an example of a telecommunication firm operating as a monopoly in the UAE. This company has a well thought out pricing strategy that can help recover costs incurred during expansion and cover grounds in the new market. For this reason, the company uses a two-tier pricing strategy. First, they can have a low price package that can help consumers feel the presence of the company. After capturing the attention of consumers, the company can go for a rigorous model.
Task 2
A monopolistic market is one in which firms can freely enter and exit. However, these firms can differentiate their products. Thus, they have an inelastic demand curve and so they can set prices. Since firms can freely enter or exit, supernormal profits push more companies to enter the market resulting in reasonable gains in the long run.
There are various features of the market in which Haagen Daz belongs. Firstly, the number of suppliers with a small market share is high. Besides, the existing product tried to make product differentiation to add an aspect of domination over the competing products. Close substitutes were causing Haagen Daz to lose its customers. Lastly, vendors compete on issues like promotion, development of the brand, and distribution instead of price.
Product differentiation is a marketing process that has the objective of making customers perceive the product of a specific firm as unique or superior to any other product belonging to the same group, and so creating a sense of value. Differentiation does not always imply changing the product, and sometimes it is enough just by simply creating a new advertising campaign or by changing its packaging. Firms like Papa Jones and Dominos sell pizza and other commodities that are differentiated in nature. Consumers loved Dominos because their products were distinguished with the attribute of delivery. Papa Jones, on the other hand, uses unique ingredients to attract consumers.
Haagen Daz faced various challenges, including competition from rivals who produced commodities with the only difference in the minds of clients. Companies like Ben and Jerry produced fat premium ice cream while Swenson produced both the premium ice cream and opened more stores. The company also lost its customers due to the idea that the product was unhealthy.
Haagen Daz profits in the Short Run
Reviving a product
Firms like Haagen Daz can revive their products by changing the name. Renaming the brand can reverse the negative perceptions held by customers about the previous commodity. Haagen Daz can also restore its premium ice cream by being customer-centric. This strategy can help the firm understand the needs of customers through market research and planning. Another vital strategy is through streamlining of the product. Sow downs may occur as products continue to grow, leading to the sprawling brand name. The optimizing approach is essential in recovering sales and brand identification.
Task 3
An oligopoly is a business dominated by a few big companies. Oligopolies. Oligopolies can retain their place of dominance in a market due to the difficulty of entering the market by prospective competitors. The fiscal and lawful concern is that an oligopoly can obstruct new competitors, slow inventions, and increase prices, thus harming customers. Barriers to entry in an oligopoly market can be natural or artificial.
Firstly, if a market has noteworthy economies of scale that have been broken by the incumbents, new competitors are deterred. Another barrier is the network effect in which several consumers have on the value of products or services to other consumers. The existence of a strong network restricts new competitors who fail to gain sufficient numbers of consumers to establish a positive network effect. Other factors that contribute to the barrier to entry include scarce resources, which other airlines could utilize. Furthermore, Limit pricing means the incumbent firm sets a low price, and high output, so competitors cannot make a profit at that price. This is best achieved by selling at a price just below the average total costs (ATC) of potential entrants. This signals to potential entrants that profits are impossible to make. The incumbent is exploiting its Airlines can also take over a potential rival by purchasing sufficient shares to gain a controlling interest, or by a complete buy-out. As with other deliberate barriers, regulators, like the Competition Commission, may prevent this as it would reduce competition. How airlines compete in oligopolistic markets
Airlines compete in oligopolistic markets through price leadership. Firms can conspire overtly, as in the case of cartels. However, this type of behavior is prohibited in many regions of the world. An option to overt conspiracy is tacit collusion, in which companies have an undeclared understanding that restricts their struggle. Firms can accomplish this through price leadership, in which one company serves as a business leader and establishes prices, whereas other companies raise and lower their costs to match.
A monopoly industry has one firm in the market due to lack of close substitutes. This industry owes its domination position to the fact that other prospective manufactures are prevented from entering the market. Economists frequently classify company behavior into two strategies: those that can compete and whose market results are similar to that in perfect competition; or conspire, where the market result will be identical to a monopoly. When companies collude, they use limiting operation practices to freely lower production and increase prices just like a monopoly, sharing the higher returns that result.
There are perceived benefits that accrue from the United-Continental merger. The merger makes the new company dominant, facilitating its upgrade with the assurance of high prices of tickets. The increased costs of tickets ensure the company has better facilities and services for flights that go for long-distance. However, the merger did not create the benefits above. Consolidation has enhanced the negotiating position of airlines in comparison with banks. With the increased prices of fuels, the profits have reduced.
Task 4
According to the law of supply, when prices of commodities are high, their prices also increase. Price elasticity, on the other hand, measures the responsiveness of quantity supplied to changes in price. For this reason, the elasticity of supply occurs when the amounts supplied respond significantly to alteration in price.
For instance, the cost of Brazil nuts in 2017 rose due to the high demand for the commodity. The consumption of Brazil nut increased as people purchased the product because they were taking healthier food snacks. With the supply being comparatively inelastic, an increase in demand had a relatively more significant impact on the price of the nuts. Besides, the harvest of Brazil nuts has been reduced due to famine linked to the Elnino effect. The depreciation of the pound ever since the Brexit election has fallen some 13percent against the dollar. A rise in the price of the dollar of Brazil nuts led to an increase in their sterling price.
Like supply, various factors impact the elasticity of demand. First, customers do not respond to the change in the prices of different commodities in the same industry. The first factor that affects the elasticity of demand is available substitutes. For example, tea and coffee can be substituted. If the price of coffee increases and that of tea remains the same, the number of people consuming coffee will reduce. Also,
essential commodities have more inelastic demand when compared to luxury. For instance, food is a necessary commodity, whereas owning a vehicle is a luxury. An increase in the price of food does not affect its demand. Nonetheless, consumers will be more responsive to the change in the price of the vehicle. Therefore, the car has a more elastic demand curve.