Various model of marketing

Generally market structures are classified into four types: Monopoly - single producer of an unique good (e.g. cable TV, diamonds, particular drugs) Perfect competition many producers of a single, unique good. Monopolistic competition many producers of slightly differentiated goods (e.g. fast food) Oligopoly few producers, with a single or only slightly differentiated good (e.g. cigarettes, cell phones, BDL to ORD flights)

A. Monopoly :
A monopoly is a market structure in which a single supplier produces and sells a given product. In a MONOPOLY, the firm and the industry are the same. If there is a single seller in a certain industry and there are not any close substitutes for the product, then the market structure is that of a "Pure Monopoly

Characteristic of monopoly market:

1. Sellers are price makers as there is only one seller in the market, it can influence the market price by its own production decisions. If the market demand curve is downward sloping then the monopoly firm faces the same demand curve, the price falls as the amount of output sold rises. So the firm can increase the market price by selling less. 2. Buyers are price takers each buyer is sufficiently small in relation to the overall market that they cant influence the market price by the amount they consume. 3. Sellers do not engage in strategic behavior when a firm makes its own output decisions, it does not take into consideration the response of other firms because there arent any. 4. No new firms can enter the market the monopoly firm faces no threat of entry from potential rivals. When you have a market that has only one firm producing, but the firm is producing at a lower price than you would expect it to, this could suggest that it is fearful of rivals entering and so is trying to deter entry through keeping the price down. Sometimes you will have a situation where there appears to be only one firm in the market, but it is not really a monopoly the threat of entry will erode its market power. 5. No Close Substitutes-All the units of a commodity are similar and there are no substitutes to that commodity. 6. Profit in the Long Run: A monopolist can earn abnormal profit even in the long run because he has no fear of a competitive seller. In other words, if a monopolist gets abnormal profits in the long run, he cannot be dislodged from this position. However, this is not possible under perfect

Various model of marketing

competition. If abnormal profits are available to a competitive firm, other firms will enter the competition with the result abnormal profits will be eliminated. 7. Losses in the Short Period-Generally, a common man thinks that a monopoly firm cannot incur loss because it can fix any price it wants. However, this understanding is not correct. A monopoly firm can sustain losses equal to fixed cost in the short period. A monopolist means that there is only a single person or a firm to sell the commodity. Therefore, anybody who would like to buy that commodity will buy it from the monopolist only. However, if a firm has monopoly of such a commodity which people buy less or do not buy, it can incur losses or it may have to stop production even. For example, if someone has the monopoly of yellow hair dye, it is natural that the firm has the possibility of incurring losses because it is a product which people generally don't buy. 8. Nature of Demand Curve-Under monopoly the demand for the commodity of the firm is less than being per-fectly elastic and, therefore, it slopes downwards to the right. The main reason of the demand curve sloping downwards to the right is the complete control of the monopolist on the supply of the commodity. Due to control on the supply a monopolist makes changes in the supply which brings about changes in the price and because of this demand changes in the opposite direction. In other words, if a monopolist in-creases the price of the commodity, the amount of quantity sold decreases. Therefore, demand curve (AR) slopes down-wards to the right. The nature of demand curve has been shown in the diagram. DD is demand curve, which has a negative slope. 9. Price-discrimination-From the point of view of profit a monopolist can change different prices from different consumers of his commodity. This policy is known as price discrimination. He adopts the policy of price discrimination on various bases such as charging different prices from different consum-ers or fixing different prices at different places etc. 10. . Average and Marginal Revenue Curves-Under monopoly, average revenue is greater than marginal revenue. Under monopoly, if the firm wants to increase the sale it can do so only when it reduces its price. This means AR would decline when sale increases. In that case MR would be less than AR. (ii) AR slopes downwards to the right and is greater than MR.

Formation of monopoly:
Monopolies can form for a variety of reasons, including the following :

If a firm has exclusive ownership of a scarce resource. Example Microsoft owning Windows OS Governments may grant a firm monopoly status, also known as legal monopoly .Example K.S.E.B (Electricity)

Various model of marketing

Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names, giving them exclusive rights to sell a good or service Example - A song writer having a monopoly over their own material. A monopoly could be created following the merger of two or more firms.

Source of monopoly power:

Monopolies derive their market power from barriers to entry 3 types of barriers to entry: a) Economic b) Legal c) Deliberate a) Economic barrier : Economies of scale: Reduce prices below a new entrant's operating costs and thereby prevent them from continuing to compete Capital requirements: Production processes that require large investments of capital, or large R&D costs limit the number of companies in an industry Technological superiority: Entrants do not have the size or finances to use the best available technology No substitute goods: There is no close substitute for a good. Control of natural resources: Control of resources that are critical to the production of a final good. Network externalities: There is a direct relationship between the proportion of people using a product and the demand for that product. More people who are using a product the greater the probability of any individual starting to use the product Ex. MS b) Legal barrier: Legal rights can provide opportunity to monopolise the market of a good. Example :Patents and Copyrights c) Deliberate actions: Deliberate actions to eliminate competitors. Such actions include collusion, lobbying governmental authorities, and force.

Type of monopoly:

Various model of marketing

a)Natural monopoly: Cost of production declines throughout the relevant range of product demand. Cost curve below the demand curve. Company with low production cost will dominate the market, naturally evolve into a monopoly. Regulation is difficult. b)Government-granted monopoly: Government grants exclusive privilege to a private individual or company to be the sole provider of a commodity; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement. Ex; Patents and Copyrights c)Bilateral Monopoly Both a monopoly (a single seller) and monopsony (a single buyer) in the same market Market price and output will be determined by forces like bargaining power of both buyer and seller. Ex: Labor Union and Factory d) Complementary Monopoly Consent must be obtained from more than one agent in order to obtain the good. This can be seen in private toll roads where more than one operator controls a different section of the road

Anti-Monopoly law in India:

1.The Monopolies & Restrictive Trade Practices Act, 1969 competition issues .Came into effect on 1st June 1970. Aims :Control of monopolies. Probation of monopolistic, restrictive and unfair trade practice. Protect consumer interest. 2. Competition Act, 2002 To shift focus of law from curbing monopolies to promoting competition. Enacted on 13th January 2003 -First enactment to deal with

Various model of marketing

Objectives of the Competition Act:a. To prevent anti-competitive practices. b. Promote and sustain competition. c. Protect the interests of the consumers d. Ensure freedom of trade.

Advantage of monopoly :
1. Can benefit from economies of scale. 2. Earns export revenues for the country- dominant Domestic monopolies entering overseas market 3. Profits invested in new technology reduces costs via process innovation. 4. Lower price and higher output in the long run. 5. Generate dynamic efficiency (technological progressiveness):High profit levels boost investment in R&D. Innovation -large enterprises - lower costs. Firm needs dominant position to bear risks. Establishing barriers to entry.

Disadvantage of monopoly to consumers:

1. Restricting output onto the market. 2. Charging higher price than in competitive market. 3. Reducing consumer surplus and economic welfare. 4. Restricting choice for consumers. 5. Reducing consumer sovereignty