MonopolyMonopoly

Is a sole supplier of a good or Is a sole supplier of a good or serviceservice

Free Market CompetitionFree Market Competition

Disadvantages of MonopolyDisadvantages of Monopoly

Take away Take away competition and competition and many advantages many advantages of free markets of free markets disappear.disappear.

Can you write Can you write down a list of down a list of disadvantages of disadvantages of monopolies? monopolies? Leave space for Leave space for any you might any you might have missed.have missed.

Statutory MonopolyStatutory Monopoly

In reality not many businesses are In reality not many businesses are sole sole supplierssuppliers

Any firm with over 25% market share Any firm with over 25% market share may have some monopoly power may have some monopoly power which they may use to exploit the which they may use to exploit the consumer and restrict competition.consumer and restrict competition.

Advantages of MonopoliesAdvantages of Monopolies

Research and developmentResearch and development

Natural monopolies – national pipes, Natural monopolies – national pipes, wires and tracks (economies of scale)wires and tracks (economies of scale)

Ability to compete in global marketsAbility to compete in global markets

Disadvantages of Disadvantages of MonopoliesMonopolies

Monopolies may restrict output and raise price Monopolies may restrict output and raise price (compared to a perfectly competitive industry)(compared to a perfectly competitive industry)

Disadvantages Disadvantages

Poor service qualityPoor service quality Lack of investment Lack of investment Inefficient - not productively or Inefficient - not productively or

allocativelyallocatively Inefficient – x-inefficientInefficient – x-inefficient

Barriers to EntryBarriers to Entry

Monopolies exist behind barriers to Monopolies exist behind barriers to entry.entry.

These are characteristics of the market These are characteristics of the market that make it difficult or impossible for a that make it difficult or impossible for a new firm to enter.new firm to enter.

What barriers to entry may a monopoly What barriers to entry may a monopoly be able to ‘hide behind’.be able to ‘hide behind’.

Barriers to entryBarriers to entry

Economies of scaleEconomies of scale Natural monopoliesNatural monopolies Legal barriersLegal barriers Brand loyalty Brand loyalty Anti-competitive behaviourAnti-competitive behaviour

Natural MonopolyNatural Monopoly

A natural monopoly is an industry A natural monopoly is an industry where one single firm cannot fully where one single firm cannot fully exploit the economies of scale, given exploit the economies of scale, given the size of the national market. the size of the national market.

For this type of monopoly LRACs just For this type of monopoly LRACs just continue to fall.continue to fall.

It is economically efficient to have It is economically efficient to have only one firm in this industry.only one firm in this industry.

Pipes, wires and tracks.Pipes, wires and tracks.

Homework- ClassworHomework- Classwor

Find a newspaper article about an Find a newspaper article about an industry you are interested inindustry you are interested in

Companies this applies to include Companies this applies to include Tesco in the UK or Microsoft.Tesco in the UK or Microsoft.

Bring it next lesson and be prepared Bring it next lesson and be prepared write a 600 – 750 word commentary.write a 600 – 750 word commentary.