MONOPOLY MARKET



 MONOPOLY MARKET



 DESCRIPTION OF MATERIALS


 1. Definition of Monopoly Market


 Is a form of market where there is only one company.  And this company produces goods that do not have very close replacement goods.



 2. Characteristics of the Monopoly Market


 a.  The Monopoly Market Is A One Company Industry

 This characteristic has been clearly seen from the definition of monopoly above, where there is only one company in the industry.  The goods or services it produces cannot be purchased from other places.  The buyers have no other choice, if they want the item then they have to buy from the monopolist.


 b.  Do not Have Similar Replacement Items

 Goods produced by monopolistic companies cannot be replaced by other goods on the market.  The item is the only type of such item and there is no close substitute that can replace the item.


 c.  There is no possibility to enter the industry

 This trait is the main reason that gives rise to companies that have monopoly power.  The existence of a very strong entry barrier prevents the enactment of such a situation.  There are several forms of entry barriers in the monopoly market.  There is a legal nature that is limited by law.  There is a technological nature that is the technology used is very sophisticated and not easily emulated.  And some are financial in nature, which is a very large amount of capital needed.


 d.  Can Affect Pricing

 Because the monopolist is the only seller in the market, the monopolist is seen as a price setter.  By exercising control over the production and quantity of goods offered by the monopolist the price of the monopoly company can be determined.


 e.  Ad Promotion Is Less Required

 Because the monopolist is the only company in the industry, it does not need to promote its goods using advertisements.  However, monopolists often make advertisements.  The advertisement is not intended to attract buyers, but to maintain good relations with the community.



 3. Factors That Cause Monopoly

 There are three factors that can lead to the realization of a monopolistic (corporate) market.  These three factors include:


 a.  The monopolist has a certain unique resource and is not owned by another company.

 b.  Monopolists can generally enjoy economies of scale to very high levels of production.

 c.  Monopolies exist and develop through laws, namely the government gives monopoly rights to the company.



 4. Maximizing Profits in Monopolies

 To maximize there are two things that must be done, namely:


 a.  Total costs and total sales results

 b.  Marginal costs and marginal sales proceeds

 Because there is only one market in a monopoly, demand in industry can also be said as demand in the market.  The general nature of the demand for goods (the less the amount of an item, the higher the price of the goods), causes the demand curve for an item to decrease from top left to bottom right.  The demand in a monopoly market is different from a perfectly competitive market, as a result of monopoly the price is always higher and the sales results are marginal.  If the price decreases, when the amount of production increases, then


 1) Total sales results will increase, but the increase will decrease if the production increases.  After reaching a certain level of production, the increase will be negative


 2).  In general, marginal sales results are lower than price.  Maximizing profits in a monopoly, can be calculated with the formula fortune = marginal sales results.  There are a number of things that need to be known in maximizing the use of the cost and total sales approach as follows:

 · If the company does not operate, this means the amount of production is 0.

 · Marginal costs will be lower if production is increased.

 · Total costs will increase with each addition of one unit of production.


 Many people consider that large profits are an important phenomenon in monopoly.  This view is actually an incorrect view, because in monopoly there are also four possibilities in the short term such as in a perfectly competitive market;  get profit more than normal, normal profit, loss can still pay back fixed costs, incur losses.  In a monopolist or other large company whose demand curve to the top of its production results is decreasing from top to bottom right, the supply curve cannot be shown because there is no exact relationship between the price and the amount offered / produced by the company. To maximize  monopoly market profits can use price discrimination.  In this case the first step taken is to determine the price of each unit of goods based on the production costs incurred and the nature of demand in each market - for domestic and foreign markets.



 5  Monopoly and Price Discrimination

 The conditions for using price discrimination are as follows:


 Ø Goods cannot be moved from one market to another.

 If there is a possibility that goods can be brought from a cheaper market to a more expensive market, the price discrimination policy will not be effective.  Goods from cheaper markets will be sold again in more expensive markets and companies cannot sell more goods provided for that market.


 Ø The nature of goods and services allows for price discrimination.

 Certain goods or services can be easily sold at different prices.  Such items are usually in the form of personal services such as the services of a doctor, legal expert, hairdresser and so on.  They can set their rates based on the ability of the subscription to pay, the rich are subject to high tariffs, while the poor are given a discount.


 Ø The nature of demand and the elasticity of demand in each market must be very different

 If demand and demand elasticity are very concurrent in both markets, no benefit will be derived from the policy.  Usually price discrimination is implemented if the elasticity of demand in each market is very different.  If demand is not elastic, prices will be set at relatively high levels, whereas in markets where demand is more elastic, prices are set at low levels.  In this way sales can be multiplied and profits maximized.


 Ø Price discrimination policy does not require costs that exceed the additional benefits obtained There are times when implementing a price discrimination policy must incur costs.  If the policy is carried out in two different regions, then the costs for transporting goods must be incurred.  And if this is done in the same area, the costs may be in the form of advertisements.  If the costs incurred exceed the added benefit derived from price discrimination, there is no benefit to carrying out the policy.


 Ø Manufacturers can exploit some irrational attitudes of consumers.

 This is for example done by selling goods that are the same but with different packaging, brand / stamp, and advertising campaigns.  In this way the producer can sell goods he says are of high quality to wealthy consumers and the rest of the population.  Another way is to sell the same items, but at different prices in different shopping areas.  In the shopping areas of the rich the price is more expensive than in the shopping areas of the poor.



 6. The Good and Bad of the Monopoly Market

 Ø Goodness:

 ü With the benefits gained, the company can conduct research / development of its products.

 ü There is business efficiency because its production is carried out on a large scale.


 Ø Badness (Weaknesses):

 ü There is no equitable distribution of income.

 ü Possible prices are not in the low level.

 ü Society does not have many choices in consuming goods and services

Post a Comment

0 Comments