MONOPOLY
THE TERM ‘MONOPOLY’ IS DERIVED FROM GREEK WORDS. ‘MONO’ MEANS
SINGLE AND ‘POLY’ MEANS SELLER. MONOPOLY REFERS TO THE MARKET WHERE
THERE IS A SINGLE SELLING THE PRODUCT THAT DOES NOT HAVE A CLOSE
SUBSTITUTE.
IT MAY BE A SINGLE FIRM OR A PARTNERSHIP FIRM OR A JOINT-STOCK
COMPANY.
FEATURES OR CHARACTERISTICS OF MONOPOLY :
? SINGLE SELLER HAS COMPLETE CONTROL OVER THE SUPPLY OF THE COMMODITY.
? THERE ARE NO CLOSE SUBSTITUTES.
? THERE IS NO FREE ENTRY OR EXIT BECAUSE OF SOME RESTRICTIONS.
? THERE IS COMPLETE NEGATION OF COMPETITION.
? MONOPOLIST IS A PRICE – MAKER.
? THERE IS NO DIFFERENCE BETWEEN FIRM AND INDUSTRY.
? MONOPLIST FACES A DOWNWARD SLOPING DEMAND CURVE. IT MEANS HE CAN
SELL MORE ONLY AT A LOWER PRICE.
TYPES / KINDS OF MONOPOLY
1. PERFECT MONOPOLY : IT IS ALSO CALLED ABSOLUTE MONOPOLY.
THERE IS NO REMOTE SUBSTITUTE ALSO. COMPETITION IS ZERO.
PRACTICALLY, SUCH TYPE OF MONOPOLY HARDLY EXISTS.
2. IMPERFECT MONOPOLY : IT IS ALSO CALLED LIMITED MONOPOLY. THE
PRODUCT SOLD HERE DOES NOT HAVE CLOSE SUBSTITUTE, BUT IT MAY
HAVE A REMOTE SUBSTITUTE.
3. PRIVATE MONOPOLY : IT IS OWNED, CONTROLLED AND MANAGED BY THE
INDIVIDUAL OR A PRIVATE BODY OR PRIVATE ORGANIZATION. IT IS ALWAYS
PROFIT-ORIENTED.
4. PUBLIC MONOPOLY : IT IS OWNED, CONTROLLED AND MANAGED BY THE
GOVERNMENT. IT IS WELFARE OR SERVICE – ORIENTED.
5. SIMPLE MONOPOLY : UNDER THIS TYPE OF MONPOLIST CHARGES
UNIFORM PRICE FROM ALL THE BUYERS.
6. DISCRIMINATING MONOPOLY : MONPOLIST CHARGES DIFFERENT PRICES FROM
DIFFERENT CUSTOMERS, DEPENDING ON ELSTICITY OF DEMAND.
7. LEGAL MONOPOLY : THERE ARE LEGAL RESTRICTIONS ON NEW ENTRY. THIS IS
DONE THROUGH PATENT, COPYRIGHTS, TRADE MARKS, STATUTORY REGULATIONS
ETC.
8. NATURAL MONOPOLY : IT IS DUE TO SOME NATURAL FACTORS LIKE LOCATION,
AVAILABILITY OF NATURAL RESOURCES ETC.
9. TECHNOLOGICAL MONOPOLY : MONOPOLY POWER IS GAINED AS A RESULT OF
RETURNS TO SCALE, SOPHISTICATED TECHNOLOGY ETC.
10. JOINT MONOPOLY : SOME TIMES A FEW FIRMS OR COMPANIES COME TOGETHER
AND FORM AMALGAMATION, CARTELS OR SYNDICATES IN ORDER ENJOY
MONOPOLY POWER. GENERALLY, GOVERNMENT PUTS RESTRICTIONS ON SUCH
A MONOPOLY.
o
output
Cost / Revenue
AC
MC
AR
MR
E
Q
R
P
S
T
EQUILIBRIUM LEVEL OF OUTPUT = OQ
AC = RQ
TC = OQRP
AR = SQ
TR = OQST
PROFIT = TR – TC = PRST
PRICE DISCRIMINATION
MONOPOLIST IS A PRICE-MAKER. WHEN HE SELLS HIS PRODUCT AT
DIFFERENT PRICES, IT IS CALLED PRICE DISCRIMINATION
THERE ARE THREE DEGREES OF PRICE DISCRIMINATION.
PRICE DISCRIMINATION OF FIRST DEGREE
UNDER THIS KIND OF PRICE DISCRIMINATION, THE MONOPOLIST SELLS
EVERY UNIT OF THE PRODUCT AT DIFFERENT PRICE. IT IS THE PRICE THAT
THE CUSTOMER IS WILLING TO PAY.
10
9
O
OUTPUT
PRICE
1
2
D
D’
PRICE DISCRIMINATION OF SECOND DEGREE
SECOND DEGREE PRICE DISCRIMINATION REFERS TO ONE IN WHICH THE
MONOPOLIST SELLS HIS OUTPUT IN DIFFERENT BLOCKS CHARGING DIFFERENT
PRICE.
O
4
D
D’
OUTPUT
PRICE
8
10
6
o o o
MKT- SEG. A MKT- SEG. B
MKT- SEG. (A+B)
P
1
P
2
MR
A
MR
B
MR
(A+B)
MC
Q
1
Q
2
Q
OQ = OQ
1
+ OQ
2
AR
A
AR
B
OUTPUT OUTPUT
OUTPUT
PRICE
PRICE
PRICE
M
PRICE DISCRIMINATION OF THIRD DEGREE
INTERNATIONAL PRICE DISCRIMINATION -
DUMPING
• Price discrimination in the area of foreign
trade is called as ‘Dumping’.
• Here the seller is a monopolist in the home
market and one of the many competitors in
the foreign market.
• Hence he charges high price in the home
market and low price in the foreign market
thereby maximizing profits.
• It is also called persistent dumping.
Types of DUMPING
There are three types of Dumping;
? PERSISTENT DUMPING.
? PREDATORY DUMPING.
? SPORADIC DUMPING
PERSISTENT DUMPING IS ONE WHICH IS ADOPTED BY THE EXPORTING
COUNTRY IN ORDER TO MAXIMIZE ITS EXPORT EARNINGS. A HIGH ELASTICITY
OF DEMAND IN THE INTERNATIONAL MARKET LEADS TO LOWER PRICE IN THE
INTERNATIONAL MARKET & A LOW ELASTICITY OF DEMAND IN THE HOME
MARKET LEADS TO HIGHER PRICE IN THE HOME MARKET.
PREDATORY DUMPING IS STRATEGY ADOPTED BY THE EXPORTING COUNTRY.
OUTPUT IS EXPORTED AT A LOW PRICE IN ORDER TO DRIVE AWAY THE
COMPETITORS & THEN TO INCREASE THE PRICE TO TAKE THE ADVANTAGE OF THE
ABSENCE OF COMPETITION. THIS TYPE OF DUMPING IS HIGHLY OBJECTIONABLE.
SPORADIC DUMPING IS THE OCCASIONAL SALE OF COMMODITY AT A LOW OR
BELOW THE COST. IT IS MAINLY TO UNLOAD UNFORESEEN & TEMPORARY
SURPLUS OF A COMMODITY WITHOUT REDUCING DOMESTIC PRICES.
doc_939476611.pptx
THE TERM ‘MONOPOLY’ IS DERIVED FROM GREEK WORDS. ‘MONO’ MEANS
SINGLE AND ‘POLY’ MEANS SELLER. MONOPOLY REFERS TO THE MARKET WHERE
THERE IS A SINGLE SELLING THE PRODUCT THAT DOES NOT HAVE A CLOSE
SUBSTITUTE.
IT MAY BE A SINGLE FIRM OR A PARTNERSHIP FIRM OR A JOINT-STOCK
COMPANY.
FEATURES OR CHARACTERISTICS OF MONOPOLY :
? SINGLE SELLER HAS COMPLETE CONTROL OVER THE SUPPLY OF THE COMMODITY.
? THERE ARE NO CLOSE SUBSTITUTES.
? THERE IS NO FREE ENTRY OR EXIT BECAUSE OF SOME RESTRICTIONS.
? THERE IS COMPLETE NEGATION OF COMPETITION.
? MONOPOLIST IS A PRICE – MAKER.
? THERE IS NO DIFFERENCE BETWEEN FIRM AND INDUSTRY.
? MONOPLIST FACES A DOWNWARD SLOPING DEMAND CURVE. IT MEANS HE CAN
SELL MORE ONLY AT A LOWER PRICE.
TYPES / KINDS OF MONOPOLY
1. PERFECT MONOPOLY : IT IS ALSO CALLED ABSOLUTE MONOPOLY.
THERE IS NO REMOTE SUBSTITUTE ALSO. COMPETITION IS ZERO.
PRACTICALLY, SUCH TYPE OF MONOPOLY HARDLY EXISTS.
2. IMPERFECT MONOPOLY : IT IS ALSO CALLED LIMITED MONOPOLY. THE
PRODUCT SOLD HERE DOES NOT HAVE CLOSE SUBSTITUTE, BUT IT MAY
HAVE A REMOTE SUBSTITUTE.
3. PRIVATE MONOPOLY : IT IS OWNED, CONTROLLED AND MANAGED BY THE
INDIVIDUAL OR A PRIVATE BODY OR PRIVATE ORGANIZATION. IT IS ALWAYS
PROFIT-ORIENTED.
4. PUBLIC MONOPOLY : IT IS OWNED, CONTROLLED AND MANAGED BY THE
GOVERNMENT. IT IS WELFARE OR SERVICE – ORIENTED.
5. SIMPLE MONOPOLY : UNDER THIS TYPE OF MONPOLIST CHARGES
UNIFORM PRICE FROM ALL THE BUYERS.
6. DISCRIMINATING MONOPOLY : MONPOLIST CHARGES DIFFERENT PRICES FROM
DIFFERENT CUSTOMERS, DEPENDING ON ELSTICITY OF DEMAND.
7. LEGAL MONOPOLY : THERE ARE LEGAL RESTRICTIONS ON NEW ENTRY. THIS IS
DONE THROUGH PATENT, COPYRIGHTS, TRADE MARKS, STATUTORY REGULATIONS
ETC.
8. NATURAL MONOPOLY : IT IS DUE TO SOME NATURAL FACTORS LIKE LOCATION,
AVAILABILITY OF NATURAL RESOURCES ETC.
9. TECHNOLOGICAL MONOPOLY : MONOPOLY POWER IS GAINED AS A RESULT OF
RETURNS TO SCALE, SOPHISTICATED TECHNOLOGY ETC.
10. JOINT MONOPOLY : SOME TIMES A FEW FIRMS OR COMPANIES COME TOGETHER
AND FORM AMALGAMATION, CARTELS OR SYNDICATES IN ORDER ENJOY
MONOPOLY POWER. GENERALLY, GOVERNMENT PUTS RESTRICTIONS ON SUCH
A MONOPOLY.
o
output
Cost / Revenue
AC
MC
AR
MR
E
Q
R
P
S
T
EQUILIBRIUM LEVEL OF OUTPUT = OQ
AC = RQ
TC = OQRP
AR = SQ
TR = OQST
PROFIT = TR – TC = PRST
PRICE DISCRIMINATION
MONOPOLIST IS A PRICE-MAKER. WHEN HE SELLS HIS PRODUCT AT
DIFFERENT PRICES, IT IS CALLED PRICE DISCRIMINATION
THERE ARE THREE DEGREES OF PRICE DISCRIMINATION.
PRICE DISCRIMINATION OF FIRST DEGREE
UNDER THIS KIND OF PRICE DISCRIMINATION, THE MONOPOLIST SELLS
EVERY UNIT OF THE PRODUCT AT DIFFERENT PRICE. IT IS THE PRICE THAT
THE CUSTOMER IS WILLING TO PAY.
10
9
O
OUTPUT
PRICE
1
2
D
D’
PRICE DISCRIMINATION OF SECOND DEGREE
SECOND DEGREE PRICE DISCRIMINATION REFERS TO ONE IN WHICH THE
MONOPOLIST SELLS HIS OUTPUT IN DIFFERENT BLOCKS CHARGING DIFFERENT
PRICE.
O
4
D
D’
OUTPUT
PRICE
8
10
6
o o o
MKT- SEG. A MKT- SEG. B
MKT- SEG. (A+B)
P
1
P
2
MR
A
MR
B
MR
(A+B)
MC
Q
1
Q
2
Q
OQ = OQ
1
+ OQ
2
AR
A
AR
B
OUTPUT OUTPUT
OUTPUT
PRICE
PRICE
PRICE
M
PRICE DISCRIMINATION OF THIRD DEGREE
INTERNATIONAL PRICE DISCRIMINATION -
DUMPING
• Price discrimination in the area of foreign
trade is called as ‘Dumping’.
• Here the seller is a monopolist in the home
market and one of the many competitors in
the foreign market.
• Hence he charges high price in the home
market and low price in the foreign market
thereby maximizing profits.
• It is also called persistent dumping.
Types of DUMPING
There are three types of Dumping;
? PERSISTENT DUMPING.
? PREDATORY DUMPING.
? SPORADIC DUMPING
PERSISTENT DUMPING IS ONE WHICH IS ADOPTED BY THE EXPORTING
COUNTRY IN ORDER TO MAXIMIZE ITS EXPORT EARNINGS. A HIGH ELASTICITY
OF DEMAND IN THE INTERNATIONAL MARKET LEADS TO LOWER PRICE IN THE
INTERNATIONAL MARKET & A LOW ELASTICITY OF DEMAND IN THE HOME
MARKET LEADS TO HIGHER PRICE IN THE HOME MARKET.
PREDATORY DUMPING IS STRATEGY ADOPTED BY THE EXPORTING COUNTRY.
OUTPUT IS EXPORTED AT A LOW PRICE IN ORDER TO DRIVE AWAY THE
COMPETITORS & THEN TO INCREASE THE PRICE TO TAKE THE ADVANTAGE OF THE
ABSENCE OF COMPETITION. THIS TYPE OF DUMPING IS HIGHLY OBJECTIONABLE.
SPORADIC DUMPING IS THE OCCASIONAL SALE OF COMMODITY AT A LOW OR
BELOW THE COST. IT IS MAINLY TO UNLOAD UNFORESEEN & TEMPORARY
SURPLUS OF A COMMODITY WITHOUT REDUCING DOMESTIC PRICES.
doc_939476611.pptx