Monopolies + their ADV+DIS

What is a monopoly? And what is meany by market structure

1. A monopoly is a market that is dominated by a single firm

2. Statistically, this firm must maintain a market share of at least 25% to be considered dominating

3. Market structure refers to the quantity of producers and consumer within a market: oligopolies contain many buyers but a few sellers, whereas competitive markets contain many buyers and many sellers.

Give me 4 ways a firm can gain monopilistic power.

BISM

1. Mergers and takeovers( acquisitions)

2. Statutory monopolies

3. Internal expansion

4. Branding

Explain how mergers or acquisitions can result in monopolies

1. Through mergers, firms can combine assets and resources to form a larger, more equiped firm, whose market share is greater than 25%.

2. Takeovers( acquisitions) can allow one firm to lehally purchase the other, allowing it to gain monopolistic power over the specified market.

One such example of this is Facebook legally purchasing Whatsapp and Instagram, allowing the compnay to gain monopolistic power over the social media industry.

Explain how statutory monopolies work

Statutory monopolies include firms that are given permission and legal protection from the Government to obtain a market share above 25%.

An example of this is the National Lottery.

Explain what internal expansion is

Internal expansions can be where firms decide to open sub-stores to gain greater consumer exposure, allowing them to gain a greater market share.

An example of this is the retailing firm Tesco opening a greater number of stores, in its name, to boost consumer exposure. This is the primary reason why it controls the supermarket industry in the UK.

Explain what branding is

Branding can greatly influence the popularity of the firm, allowing it to gain a greater percentage of market share.

An example of this is Apple, and its control of the technological( retailing) market. Apple's consumer loyalty is so greatly admirable that no other firm can compete with Apple in consumer exposure, resulting in this company to gain monopolistic power.

List 4 ways the Government can prevent a firm, or firms, from gaining monopolistic power.

1. Preventing mergers

2. Demerging a firm

3. Price caps

4. Lower barriers to entry

Explain how a Government can stop mergers

1. The Government can prevent firms from merging their assets and resources to contruct a single, powerful firm capable of dominating the market.

2. An example of this is the Government preventing the merger between ASDA and Sainsburys in 2018

Explain how a Government can demerge a firm

1. The Government can cause a firm to demerge, from concerns over its power and dominion of the market.

An example of this is the demerging of the company Lloyds TSB into two separate banking firms- Lloyds and TSB.

Explain how a Government can set a price cap

1. The Government can set the maximum prices for goods and services that firms must abide by when selling their produce. This is to avoid consumer exploitation in a monopolistic market.

Theresa May was head of the Government that set price caps to the energy per unit sold in 2018. This is because the 6 major companies, selling this energy, were colluding for higher prices.

Explain why a Government may lower barriers to entry

1. The Government can reduce the barriers of entry to prevent the single firm from gaining dominion over the market. It can do this by offering smaller firms startup loans to construct foundations for their companies.

What are the disadvantages to monopolies? And explain who they affect.

1. Higher prices for consumers

2. Organisational slack

3. Monopsony power

4. Diseconomies of scale

Explain why higher prices for consumers is a disadvantage

1. Monopolistic firms will acknowledge that the demand for their goods and services is inelastic. This is because there are no alternate substitutes.

2. Therefore, firms will rise the prices of these goods and serives to gain higher revenues and profits.

3. This is disadvantageos for consumers because their purchasing power will weaken, causing their disposable income to lessen.

Explain organisational lack

1. Monopolistic firms will experience organisational lack.

2. This is because these firms will lose their incentive to be efficient as they do not require this trait because they are the dominating company in the market.

3. This is disadvantageous for firms.

Explain how monopsony power could occur

1. Monopolistic markets can lead to monopsony power.

2. This is where monopolistic firms have the ability to pay lower prices, to gain their resources for production from suppliers.

3. This is because their suppliers, theoretically, only have one buyer and, therefore, will lose their power of bargaining.

4. Workers are, also, at disadvantage here because these dominating firms have the ability to fire them and hire new workers.

Explain how diseconomies of scale could occur

1. Monopolistic firms may suffer from diseconomies of scale.

2. This is because these dominating firms may suffer from lack of communication, as a result of their large expansion.

3. It will be more difficult for certain sectors of the company, such as the technical department to communicate with the marketing department.

4. This will result in a reduced productive potential, resulting in the costs of production to rise.

5. This is negatory for firms.

Explain the 3 advantages to a monopoly. And explain who they affect.

1. Innovation( consumers)

2. Lower costs of production( firms)

3. Lower prices( consumers)

Explain how innovation may occur

1. Monopolistic firms will gain higher revenues and profits as a result of their 25% market share.

2. Firms, therefore, can use these revenues and profits for research and development to further improve the quality of the products and create more innovative goods and services.

3. This is advantageous to consumers because they have greater exposure to more unique goods and services.

Explain how firms may experience economies of scale

1. A monopoly is a market that is dominated by a single firm that maintains a market share of 25%( to be considred dominating).

2. This firm, therefore, will experience higher levels of consumer demand, forcing this firm to complete a greater number of sales to alleviate this high consumer demand.

3. This will incentivise the monopolistic firm to operate in a more cost-effective, productive manner to produce more goods and services. This will, in turn, will result in the firm's costs of production to increase; however, these high costs will be spread over the large-scale of output, allowing the firm to experience lower (total) average costs of production.

4. This will allow the monopolistic firm to experience lower long run average costs in response to its great expansion.

Explain why consumers may receive lower prices

1. Because firms experience economies of scale, they can pass their lower costs of production towards the prices of their goods and services. This can be see through lower prices as firms have the ability to sell their products at these ranges.

2. This is, therefore, advantageous to consumers because they will be able to experience lower prices, allowing them to save a larger proportion of their disposable income for future use.