MONOPOLY
What is monopoly?
Based on economic, monopoly is an industry with a single company which produces product or offer services to customer which there are no close substitutes. This is because there is a barrier to entry which is actually preventing other firms to enter into the industry to compete for profit. There are actually few type of barrier entries, here are a few types of barriers to entry.Copyrights
Copyrights which is also known as patents are the legal restrictions that grant the
exclusive use of the patented product or process to the firm. By having copyrights, monopolist is able to prevent other firms from entering the market to
produce the same product.
Ownership of scarce raw materials
If a firm have total ownership of scarce raw materials in a industry, it can be an effective barrier because other firms is unable to have the access of the scarce inputs because the owners of the scarce raw materials are the only one whom can gain the materials.
Economies of Scale
Economies of scale and
other cost advantages are
enjoyed by the existing firm that produces large output and at the same time, the larger firms are providing the advantage of having a lower average cost in production.
Few example of a firm which is running by virtue of government directive in our country.
Tenaga Nasional Berhad which is the main electricity in Malaysia. Having a government directive, it prevents other firm form entering.
Syarikat Bekalan Air Selangor Sdn Bhd or better known as SYABAS is the main water supply in the states of Selangor and the Federal Territories of Kuala Lumpur.
KTM Komuter is the first electric train service in Malaysia. It is also the main electric train service in the country.
Advantages and Disadvantages of Monopoly
Advantages
-High profits encourage risk takings.
-Profits can be used for investment.
-Existence of natural monopoly may prevent
duplication of resources.
Disadvantages
-Lack of competition may lead to higher costs.
-Lack
of incentive to innovate.
-Inefficiency in social welfare.
Can governments monopoly a certain field
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