Economics of a Monopoly

Economics of a Monopoly

Introduction

¡§Monopoly¡¨ is defined by its market power. Monopolies are always known to possess an exclusive control over its particular market and that gives them the sovereign authority to control the prices for its goods or services (Dictionary.com Unabridged (v1.1), 2006). Hence, they represent the market. They indeed have detrimental effects on consumer and social welfare.

In this paper, section 1 will focus on the theory and economics of a monopoly. Section 2 will discuss with a recent case of monopoly, as in the web search engine company- Google, whose real repercussion is still not clear to most consumers. Finally this essay will conclude with the outlook on how world markets are opening up to each other and how competition and new government policies are restraining the growth of monopolies and their incessant power.

1 Theory and Economics of a Monopoly

In theory, monopoly can be defined as the presence of a single firm in an industry or a number of firms sharing the majority of the market -An Oligopoly (Sloman, 2005).In practice, monopoly is considered to be 25% or more of the market. Market power is shaped by these monopolies in their respective fields and they gain supernormal profits out of it. An individual firm¡¦s output manipulates the price of that goods or services, and that in turn is referred to as market power (McAleese, 2004).

1.1 Profit maximization under monopoly

Monopoly follows the same rules for profit maximization as given in a perfect competition. Namely, the cost curves looks similar to those of establishments under perfect competition although the revenue curves look dissimilar (Sloman, 2005).

Figure 1: Profit maximization under monopoly (Adapted ...

... middle of paper ...

... 4, 2007, from ABI/INFORM Global database).

9. Shepherd, William G. (1979). The Economics of Industrial Organization. Pretence Hall: Englewood Cliffs.

10. Sloman, J. (2005). The Economic Environment of Business. Pearson Education Limited: Harlow, Essex.

11. Thomas M. Lenard and Paul H. Rubin (2007, August 21). Googling 'Monopoly'. Wall Street Journal (Eastern Edition), p. A.14. (Accessed: November 3, 2007, from ABI/INFORM Global database).

12. Wakefield, 2006] Wakefield, J, Google faces China challenges, BBC News, 25th January http://news.bbc.co.uk/2/hi/technology/4647468.stm, 2006 (Accessed: November 1, 2007).

13. Walter S. Mossberg (2005, March 10). Google Toolbar Inserts Links in Others' Sites, And That's a Bad Idea. Wall Street Journal (Eastern Edition), p. B.1. (Accessed: November 4, 2007, from ABI/INFORM Global database).