monopoly in today's market

"MONOPOLY IN TODAY'S MARKET"

BY:-                   VIKRANT SAHA15112109   K10

ANECONOMICS

PRESENTATIONON

WHAT EXACTLY IS A MARKET ??? 

Ordinarily, the term “market” refers to a particular place where goods are purchased and sold. But, in economics, the term “market” does not mean a particular place, but the whole area where the buyers and sellers of a product interact to have an economic exchange. A market thus, is not related to a place but to a particular product. The price of a commodity is the same in the whole market.

CLASSIFICATION OF MARKETS

MONOPOLY

¨  A monopoly is a market structure in which a single person or enterprise is the only supplier of a particular commodity.

¨  Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit.

The term "Monopoly" has been derived from two Greek words: 'Monos' meaning 'Single' and 'Polein' meaning 'Seller'.

WHY DO MONOPOLIES ARISE ??? 

The Fundamental cause of Monopolies is "Barriers To Entry".

Barriers to Entry have 3 sources:

¨ Ownership of a key resource by a single firm ¨ Government created monopolies¨ Natural Monopolies

FEATURES OF A MONOPOLY

¨ The Monopoly Firm(Monopolist) must be the only supplier of the product.¨ There must be no close substituents of the product.¨  A monopoly firm may be owned by a person, a few partners or a joint stock company.¨ A monopolist can influence the price of a product. He is a price-maker, not a price-taker.¨ Pure monopoly is not found in the real world.¨  A Monopolist faces no competition.& there is a strong barrier on the entry of new firms. 

DEMAND CURVE FOR A MONOPOLY

The Demand Curve for a monopoly is downward sloping. So to increase his sales, a monopolist has to decrease the price of his product and thereby maximize his profit. .

A MONOPOLIST'S MARGINAL REVENUE

The marginal revenue curve of a monopolist is below the average revenue curve and it falls faster than the average revenue curve. This is because a monopolist has to cut down the price of his product to sell an additional unit.

MAXIMIZING PROFITS FOR A MONOPOLIST 

A monopoly maximizes its profit by producing the quantity at which marginal revenue equals marginal cost.It then uses the demand curve to find the price that will induce consumers to buy that quantity

TYPES OF MONOPOLY1) Perfect Monopoly: MS WORD in US

2) Imperfect Monopoly: Vodafone facing competition from BSNL

3) Private Monopoly: Bajaj Motors 

4) Public Monopoly: German Public Train System

5) Simple Monopoly: Gold Monopoly

6) Discriminating Monopoly: Airline Monopoly

7) Legal Monopoly: AT&T

8) Natural Monopoly: Utilities Industry(Gas,Power)

9) Technological Monopoly: Internet Explorer

10) Joint Monopoly: Pizza and Burger making firms

ADVANTAGES OF MONOPOLIES

A Monopoly has complete control over their market, therefore:¨ Over-produce can be prevented¨ Prices will lower over time as a result of Economy of Scale¨ Abnormal profit is common even in the long run.¨ Production is more efficient and profitable.¨ Leads to innovation of some kind.

WHEN A MONOPOLY ACTUALLY HELPS:For example the unit cost of A Boeing 747-400 is $228-260 million (2007) Boeing 747-8 $285.5-300 million (2007)In 2007, there were orders for only 16 aircraft. Clearly an industry like this is going to have huge economies of scale. To develop a Boeing 747 is very expensive. The unit cost of over $200 million dollars means that it would not make sense to have more competition in this market. If there was competition, then the unit costs would probably increase substantially making it potentially unprofitable. The Boeing will have various economies of scale such as:¨ Specialization¨ Technical economies¨ Bulk buying¨ financial economies¨ marketing economiesThis is an example of a market where firms with monopoly power are likely to lead to better deals for consumers. In developing the next generation of jumbo jets, the firms will require huge amounts of investment. This investment is only viable for a firm with a high market share and large profit.

WHY ARE MONOPOLIES BAD FOR ECONOMY ??

1. Since monopolies are the only provider, they can set any price they choose. That's known as price-fixing. They can do this regardless of demand because they know the consumer has no choice.2. Not only can monopolies raise prices, but they can also supply inferior products.3. Monopolies eliminate the manufacturer's incentive to innovate and provide "new and improved" products.4. Monopolies create inflation. Since they can set any price they want, they will raise costs to consumers. It's called cost-push inflation.

HAVE YOU EVER WONDERED ???

THERE'S MORE TO RAY-BAN AND OAKLEY THAN MEETS THE EYE !!

The reason you have to pay over the odds for your glasses is because of a little known but very big Italian Company called LUXOTTICA. From Ray-Ban and Oakley sunglasses and prescription frames that retail in the hundreds of dollars, to the stores that sell the glasses, Luxottica Group dominates the eyewear world.Not only are you most likely buying Luxottica-made glasses, but chances are that you buy them from a Luxottica-owned retailer too. In 2014, the Italian company generated over €7.6 billion (about $8.5 billion) in revenue and produced over 77 million pairs of sunglasses and optical frames.

BRANDS HOUSED BY LUXOTTICA

HOW LUXOTTICA BECAME THE FORCE THEY ARE TODAY :

 ¨  Luxottica was the first sunglass company to sign licensing agreements with designers, giving them a significant advantage over the competitors.   ¨  Luxottica holds the cards in brick-and-mortar retail: when competitors get too large, Luxottica can simply cut them out of their popular distribution channels. That’s exactly how they treated then-independent competitor Oakley in the early 2000′s. After Oakley took them to court over a patent dispute, the integrated manufacturer/retailer/insurer bought its biggest rival and now Oakley is just another Luxottica brand — the eyewear equivalent of Coke buying Pepsi.¨  When Luxottica purchased Ray-Ban in 1999, the company was on life support.Luxottica took the brand off the market for a year and then relaunched them as a luxury brand with glasses selling for over five times the earlier price.¨  Luxottica also owns Sunglass Hut - the world's largest sunglass chain. As well as EyeMed, the second-largest vision care insurance plan in the U.S.¨  In March 2014, it was announced that Luxottica would partner with Google on the development of Google Glass and its integration into Luxottica's eyewear

EXTENT OF MONOPOLY

¨  Luxottica dominates the eyewear market with over an 80% share.¨  Luxottica has a share price that is $30 higher, nearly four hundred million more shares and a much larger market capital than its nearest competitor Safilo.