economics
- Created by: katier1234
- Created on: 16-11-19 20:26
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- Monopoly and Monopoly Power
- Pure monopoly- when there is only one firm in the market - very rare and is normally a state owned monopoly or protected by law
- Working Monopoly- Firm with 25% of the industry's total sales
- Dominant firm- at least 40% of the market power
- Monopoly Power- the power of a firm to act as a price maker rather than a price taker
- Sources of monopoly power- Monopolies can become established in a number of ways e.g
- Natural monopoly- one large business can supply the entire market at the lower prices than two or more smaller ones- they have fully exploited economies of scale. There cannot be more than one efficient provider of a good. In this situation competition might actually increase costs and prices
- Example- network rail, utilities (gas, electric, water)
- Geographical cause of monopoly- A single grocery store in an isolated village can be classed as a local monopoly- entry to this market by a second store is restricted by the small nature of the local market. other reasons could be climatic reason, countries having a large supply of a raw material or food stuff
- Example- oil, coco, beans,bananas
- Government created monopoly- they create monopolies in industries they believe are too important to leave to competition. industries such as coal and steel, rail were nationalised. The government may create a private monopoly this is where certain businesses can be briefly protected by the law from competition
- Example- telephony market which is now highly competitive in the UK
- Growth - monopoly power can come from the successful organic (internal growth) of a business through mergers and acquisitions ( also known as integration of firms
- Horizontal integration- this is where two firms join at the same stage of production in one industry
- jaguar land-rover- share skills so therefore more efficient due to sharing raw materials
- Vertical integration- this is where a firm integrates with different stages of production
- by buying its supplies or controlling the main retail outlets e.g shell
- Forward vertical integration- occurs when a business merges with another business further forward in the supply chain
- example phone company merging with a shop retailer
- Backward vertical integration- occurs when a firm merges with another business at precious stage of the supply chain
- Tescos bought out in bulk (whole sale market) cash and carry so a link in that part of the supply chain
- Horizontal integration- this is where two firms join at the same stage of production in one industry
- Natural monopoly- one large business can supply the entire market at the lower prices than two or more smaller ones- they have fully exploited economies of scale. There cannot be more than one efficient provider of a good. In this situation competition might actually increase costs and prices
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