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Harry Bindloss

The legal definition of a monopoly is a firm that has over 25% market share. If this is the
case the Competition Commission (CC) can investigate it. However, the textbook definition
of a monopoly known as pure monopoly is where there is a single supplier in the…

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Harry Bindloss

Monopolists are effectively the industry. Monopolies have to minimise costs to therefore
maximise profits. However they may experience diseconomies of scale.

Monopolists tend to erect barriers to entry to stop other firms from entering the market.

Market barriers ­ Advertising and branding can create such a strong brand…

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Harry Bindloss

1. Tax abnormal profits
­ The tax can then be redistributed throughout society.
­ However, reduces the incentive to then make it
­ Tax is insignificant to the monopolies
­ There are internal things they could do to get around it.

2. Price Controls
Impose a maximum price…

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Harry Bindloss

2. Natural monopolies ­ Natural monopolies exist in an industry where not even one
single producer can exploit all available economies of scale. Therefore the larger the firm
the more cost advantages it can exploit. In a competitive market firms are smaller and
costs are higher. Large monopolists…

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Harry Bindloss

Price fixing ­ at a high level reduces consumer surplus
Artificial barriers to entry ­ new entrants and unable to compete with high
advertising costs for example.

4. Equity problems ­ there are other aspects of monopoly besides efficiency losses
Negative externalities
Equity - unfairness in the distribution…

Page 6

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Harry Bindloss

monopsonist can exploit their bargaining power with a supplier to negotiate lower prices.
The reduced cost of purchasing inputs increases their profit margins. Monopsony exists in
both product and labour markets.

For example, National rail in the UK dominates the market for purchase of rail track
maintenance. Monopsonist…




This is a 6 page summary on monopolies including the diagrams, pros and cons, methods of dealing with and monopsony. A good summary.

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