Monopoly competition


5 Characteristics

1. Single seller

2. High barriers to entry and exit

3. Profit maximiser

4. Price maker 

5. Price discrimination

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Because a pure monopolist is the single seller in the market, this means SNP can be generated, as competition cannot absorb any of the profits away owing to the either natural of artificial barriers to entry. Therefore, the firm's D=AR curve will remain in the same place, above the AC. As a result, this enables the monopolist to keep making SNP, at the expense of being allocatively and productively inefficient.

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Argument for monopolies

1. Monopolies can make SNP, which can be used to fund high-cost capital investment spending. Successful research can be used for improved products and lower costs in the long term.

2. EOS -  in principle the increased output can reduce AC, of which this benefit can be passed down into consumers (but in reality unlikely)

3. A firm may become a monopoly though being efficient and dynamic. A monopoly is thus a sign of success, not inefficiency. E.g Google has gained monopoly power through being regarded as the best firm for search engines

4. May be necessary for a firm to have a domestic monopoly in order to be competitive internationally 

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Argument against monopolies

1. X-inefficiency - it is argued that a monopoly has less incentive to cut costs because it doesnt face competition from other firms

2. Monopolies may use their SNP and monopsony power to pay lower prices to suppliers

3. A monopolist makes SNP Qm (AR-AC) leading to an unequal distribution of income

4. The high barriers to entry means consumer choice is limited,  and therefore does not satisfy the need for the masses, furthering the issue of the fundamental economic problem


Monopsony is where a firm has buying power in their market, which means they can exploit their bargaining power with suppliers for lower costs. Whereas monopoly power is where a firm can  possess a monopolist's features e.g. PSP, but not be a pure monopolist.

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