Eco PPT Neww

MICROECONOMICS
Cat-3
MONOPOLY
SUBMITTED TO:-
SUBMITTED BY:-
Mrs. Rashi Mittal ABHINAV PANCHAL
ARVIND YADAV
KRISH KHEMKHA
CONTENT:
• Meaning of MONOPOLY.
• Definitions of MONOPOLY.
• Features of MONOPOLY.
• Advantages & Disadvantages.
• Why governments may tolerate
MONOPOLIES.
• Case study on FACEBOOK.
Meaning of MONOPOLY.
The word monopoly has been derived from
the combination of two words i.e., ‘Mono’ and
‘Poly’. Mono refers to a single and poly to
control.
In this way, monopoly refers to a market
situation in which there is only one seller of a
commodity.
Definitions of MONOPOLY.
• “Pure monopoly is represented by a market situation in which
there is a single seller of a product for which there are no
substitutes; this single seller is unaffected by and does not affect
the prices and outputs of other products sold in the economy.”
Bilas
• “Monopoly is a market situation in which there is a single seller.

There are no close substitutes of the commodity it produces, there
are barriers to entry”. -Koutsoyiannis
• “Under
pure monopoly there is a single seller in the market. The
monopolist demand is market demand. The monopolist is a price-
maker. Pure monopoly suggests no substitute situation”. -A. J.
Braff
• “A pure monopoly exists when there is only one producer in the

market. There are no dire competitions.” –Ferguson
• “Pure or absolute monopoly exists when a single firm is the sole

producer for a product for which there are no close substitutes.” -
McConnel
Features of MONOPOLY
1. One Seller and Large Number of Buyers:
The monopolist’s firm is the only firm; it is an industry. But the
number of buyers is assumed to be large.
2. No Close Substitutes:
There shall not be any close substitutes for the product sold by the
monopolist. The cross elasticity of demand between the product of the
monopolist and others must be negligible or zero.
3. Difficulty of Entry of New Firms:

There are either natural or artificial restrictions on the entry of firms
into the industry, even when the firm is making abnormal profits.
4. Monopoly is also an Industry:
Under monopoly there is only one firm which constitutes the
industry. Difference between firm and industry comes to an
end.
5. Price Maker:
Under monopoly, monopolist has full control over the supply of
the commodity. But due to large number of buyers, demand of
any one buyer constitutes an infinitely small part of the total
demand. Therefore, buyers have to pay the price fixed by the
monopolist
Advantages & Disadvantages.
Disadvantages of monopolies:
1.Higher prices than in competitive markets – Monopolies face

inelastic demand and so can increase prices – giving consumers no
alternative. For example, in the 1980s, Microsoft had a monopoly on
PC software and charged a high price for Microsoft Office.
2.A decline in consumer surplus. Consumers pay higher prices and
fewer consumers can afford to buy. This also leads to
allocative inefficiency because the price is greater than marginal cost.
3.Monopolies have fewer incentives to be efficient. With no
competition, a monopoly can make profit without much effort,
therefore it can encourage x-inefficiency (organisational slack)
Advantages of monopolies:
1. Economies of scale. In an industry with high fixed costs, a
single firm can gain lower long-run average costs – through
exploiting economies of scale. This is particularly important
for firms operating in a natural monopoly (e.g. rail
infrastructure, gas network).
2. Innovation Without patents and monopoly power, drug
companies would be unwilling to invest so much in drug
research. The monopoly power of patent provides an incentive
for firms to develop new technology and knowledge, that can
benefit society. Also, monopolies make supernormal profit
and this supernormal profit can be used to fund investment
which leads to improved technology and dynamic efficiency.
3. Firms with monopoly power may be the most efficient and
dynamic. Firms may gain monopoly power by being better
than their rivals.
Why governments may tolerate
MONOPOLIES
• It is difficult to break up monopolies. The US government passed a
lawsuit against Microsoft, suggesting it should be split up into
three smaller companies but it was never implemented.
• Governments can implement regulation of Monopolies e.g. OFWAT
regulates the prices for water companies. In theory, regulation
can enable the best of both worlds – economies of scale, plus fair
prices. However, there is concern about whether regulators do a
good job – or whether there is regulatory capture with firms
gaining generous price controls.
Case Study on FACEBOK
• The US government and a coalition of 48 states and districts have
filed parallel lawsuits against Facebook in a major antitrust
offensive that accused the social media behemoth of
anticompetitive behavior and could ultimately force its breakup.
• At the heart of both antitrust actions, announced before, is

Facebook’s dominance of the social media landscape, and
whether the company gobbled up potential competitors and
blocked market access to others that could have eaten into its
staggering market share.
• One lawsuit brings together nearly every state in the US, a
coalition led by New York’s attorney general, Letitia James. The
suit accuses Facebook of abusing its market power to quash
smaller competitors.
• The US Federal Trade Commission (FTC), which collaborated with

the attorneys general in a years-long investigation, launched its
own suit alleging that Facebook engaged in a “systematic
strategy” of anticompetitive conduct. The FTC is seeking a
permanent injunction in federal court that could force Facebook to
sell off Instagram and WhatsApp.

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MICROECONOMICS

• “Monopoly is a market situation in which there is a single seller.

• “A pure monopoly exists when there is only one producer in the

• “Pure or absolute monopoly exists when a single firm is the sole

3. Difficulty of Entry of New Firms:

1.Higher prices than in competitive markets – Monopolies face

• At the heart of both antitrust actions, announced before, is

• The US Federal Trade Commission (FTC), which collaborated with

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