Eco 204 Final Paper

Topics: Monopoly, Monopolistic competition, Economics Pages: 4 (1488 words) Published: July 3, 2011
In this case, two smart lawyers with economic power took advantage of a situation in a free market to combine an already successful business. They have no competition and they are ready to sell! The management consulting firm they hired will take charge of the advertising, the lay-off of employees, and the new way of operating. After hours on hours of research, I have found there are many opinions. What I do know is the term “monopolistic competition” is easy to confuse with the term “monopoly.” The two models are characterized by quite different market conditions. A monopoly is a single firm with high barriers to entry. Monopolistic competition implies an industry with many firms, differentiated products, and easy entry and exit. (Case 2009) Given that the new company Wonks is now run as a monopoly, this benefits the stakeholders involved, such as the government, businesses, and consumers. As you go on to read this paper, I will explain the benefits for all 3 topics. I know no one asked, but I also commented on some negative drawbacks of each below as well. Government will benefit because government monopolies are a convenient source of revenue. The government is the only entity that can force other companies out of a market. This “force out” can definitely cause controversy in the marketplace. ( The owners of Wonks can push the government to impose restrictions on competition. If other business owners in the market found out about this, they would use as much negative publicity as possible. This would provide an entry barrier into the market. Also low prices can reduce the profit margins for new industries and act as what economists could call an entry barrier as well. Let’s say Wonks has a patent on a cooking method for their potato chips which is one of their techniques, a secret blend of spices to improve the product it offers, or a patent on the growing method of the potato. Government patents encourage innovation...
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