ECO204: Principles of Microeconomics
A monopoly is an industry composed of only one firm that produces a product for which there are no close substitutions and in which significant barriers exist to prevent new firms from entering into the industry (Case, 2009). In a different definition, it can be distinguished by a lack of financially viable competition to produce the goods or services as well as to substitute goods. Monopolies often refer to a procedure by which a company could gain a determinedly larger market than what would be expected under an ideal competition. This paper will emphasize on several components such as how a monopoly can benefit towards stakeholders or owners. Also, how the changes could take place according to price and output of the goods and services in a particular market place and how the market structure can be beneficial to the Wonks potato chip monopoly.
This paper addresses a particular incident regarding a company called “Wonk” that produced potato chips. In 2008, two lawyers started acquiring aggressive potato chip firms with the plan to create a monopoly firm ‘Wonk’. From this perspective, those lawyers hired a consulting firm to manage and estimate the long-run competitive stability of this firm as monopoly. Again, with rule of marketplace a monopoly is a company which produces goods and services for which there no substitution in that particular area to compete for those certain products or services and prohibits new companies enter in that market to serve that community. By acquiring all the farms that produce similar products like potato chips those lawyers made a perfect monopoly of its kind. A perfect or pure monopoly would definitely make this firm to control the entire business of that kind. This is how this “Wonk” takes over its significant position and which reflect on the market demand curve. This company with two lawyers now would have power over everything from output quantity, to price point and as well as customer choice. In this case the cost of production would the only thing remaining against them.
When the firm has over all control to what extent of production would take place and how much production would be continued based on demand and thus the firm controls their position on the demand curve. This would be a great example of Monopoly. By running a company as a monopoly there would be no difference between the product market and the company. (Case, 2009) Since the company is the market place where it would eventually decide what move should they make, what is going on in terms of external and internal operation of the business. This situation could generate a significant price unfairness, which would definitely impact families, consumers and suppliers of the goods and services. This kind of discrimination could affect suppliers being charged a higher fee for the similar goods and services in the area where they reside or within their reach. In these circumstances, monopoly would ultimately affect the society and regular consumers. Some families would have to pay higher than others for trading the same goods and services if it was purchased from different location or city where this type of Monopoly does not exist. When a manufacturer negotiates a lower rate that might be a different case whether it acts as Monopoly or not it takes a different direction and breaks the monopoly games.
As a business owner or consumers, it is definitely not very beneficial to have a firm that is monopoly due to its power and control that affects consumers or the society. One of the most important components of monopoly is the improved price discrimination which often allows a monopolist to increase greater profit by charging more money to those consumers that require in higher demand and those who need the product more or who have a better ability to bear the cost. For example, most of the textbooks cost significantly higher in the...