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ECON 202 PRINCIPLES OF CONTEMPORARY MACROECONOMICS. 1a) What is monopoly?
According to the American Heritage dictionary, ‘monopoly ...
Submitted by supergoal92 on June 9, 2008
Category: Business
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1a) What is monopoly?
According to the American Heritage dictionary, ‘monopoly’ is described as:
i) a right granted by a government giving exclusive control over a specified commercial activity to a single party;
ii) a company or group having exclusive control over a commercial activity;
iii) a commodity or service so controlled.
A monopoly is a market with a single supplier of goods or services that has no close substitutes and in which natural or legal barriers to entry, prevents competition. Therefore, a monopoly exists when there is only one firm in the industry that has exclusive rights to manufacture and distribute its unique range of service or product.
Market for local telephone service, gas, electricity, and water are some examples of local monopoly. GlaxoSmithKline has a monopoly on AZT, a drug that is used to treat AIDS. DeBeers, a South African firm, controls 80 percent of the world’s production of raw diamonds-close to being a monopoly but not quite one.
However, it is not clear as to how an industry should or could be classified as a monopoly. There are many instances where an industry/ organization has monopoly over others, but there are replacement/ substitutes, which are similar in nature to the specific services, and products that make monopoly hard to achieve. It depends how narrowly the industry is defined. For example, a textile company may have a monopoly on certain types of fabric, but it does not have a monopoly on fabrics in general. The consumer can buy fabrics other than those supplied by the company. A rail company may have a monopoly over rail services between two cities, but it does not have a monopoly over public transport between these two cities. People can travel by coach or air. They could also use private transport.
To some extent, the boundaries of an industry are arbitrary. What is more important for a firm is the amount of...
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