MONOPOLY, types and Advantages of Monopoly
What is monopoly? Monopoly may be defined as a market situation where there is only one producer or supplier of a particular good or service that has no substitute.
The monopolist has the power to influence the price of goods to his favour. The goods sold by a monopolist is normally differentiated.
Definition: A monopolistic competition is a market situation which combines the fundamental characteristics of both pure monopoly and perfect competition.
This type of market situation exists because neither pure monopoly nor perfect competition exist in isolation and this is as a result of absence of homogeneity and heterogeneity of products sold in both markets.
Causes of Monopoly
- Act of Parliament: This is a legal instrument by government, conferring special monopoly on some organizations to produce or supply certain goods or services, e.g. public corporations.
- Patent Law: This law confers on a firm special privilege to protect its new invention and it tends to scare away other competitors.
- Level of technology: When a firm develops high level of technology, which makes goods cheaper, this may force other competitors out of production.
- Effective advertising: The success of a firm in effective advertising may force other competitors out of business.
- Protection of public interest: Deliberate effort to protect public interest by government may confer certain monopoly on some firms, e.g. Power Holding Company.
- Natural cause: Certain areas may enjoy the production or supply of certain goods due to natural endowment, e.g. crude oil in Niger Delta.
- Merging of producers: The merging of producers will make them stronger to be able to eliminate other competitors in the business.
Advantages of Monopoly
- Standardization: Standardization, which is the basis of cheaper production, is better practiced under monopoly.
- Centralized management: There is effective and proper central management under monopoly.
- Economies of large scale production: Economies of large scale production is possible under monopoly since it has no competitors.
- Greater efficiency: There is greater efficiency resulting from an assemblage or pool of specialized managerial skills. It leads to invention: Monopolist, in an attempt to have full control of the market, do engage in intensive research, leading to inventions.
- It leads to invention: Monopolist, in an attempt to have full control of the market, do engage in intensive research , leading to inventions.
- Better use of resources: Resources available to a monopolist are utilized to maximize production.
- Increase in supply: Economies of scale production enjoy by monopoly usually lead to an increase in the supply of the commodity in question.
- Avoidance of duplication: avoidance of duplication and waste often associated with perfect competition, especially in the supply of social services.
- Greater opportunity to expand operations: There is greater opportunity to expands operations because uncertainty usually associated with j of free competition has been eliminated.
Disadvantages of Monopoly
(1) Danger of exploitation: Monopoly leads to exploitation of the consumers
(2) It leads to hoarding: The desire for super normal profit by the monopolist may lead to restriction in output and hoarding
(3) Decline in efficiency: Absence of competition often leads to decline in efficiency.
(4) Over-production and was waste: A monopolist may over-produce, lead
(5) Loss of freedom of choice: There is a complete loss of freedom of choice by consumers.
(6) Production of substandard goods: Monopoly may lead to inefficiency and production of sub-standard products.
how to Control of Monopoly
- Provision of substitute products: Monopolist excel because their pr have no substitute. In order to cc them, there should be provision of substitute product.
- For example, there should be an alternative power supplier mart from the Power Holding Company.
- Privatization: Private individuals should re encourage to take over government corporations and agencies in order to eliminate monopoly from the system.
- Stoppage of issuance of patent law: The stoppage of such will encourage more people to compete with the inventor so as to promote more inventions in the system.
- Discouraging merging of firms: Government can make laws which will discourage firms from merging.
- Reduction of tariffs: When tariffs are reduced, more goods will be imported and this condition will help to reduce the influence of the monopolist, as there would be favourable competition.
- Price Control: Government may decide to establish price control mechanism. This enables prices of goods and services to be fixed, thereby reducing the huge profit of the monopolist.
- High taxes on monopoly profits: High taxes on monopoly products may be imposed, thereby reducing the huge profits made by the monopolistic person(s) or firms.