<2.11.3 MONOPOLY>

"So you are the only supplier of this product; you are differentiated from your rivals, with huge barriers to entry. In addition, you have the lowest costs due to your economies of scale. Furthermore, you are able to successfully convince consumers that you are the best at making this product, and your brand reputation is second to none. In other words, you hold a monopoly in this market, which must be generating millions for you, correct??

↓

↓

↓

↓

↓

↓

"Wrong!, Despite being the only supplier of chocoloate teapots we can't seem to turn s profit, why not?"

"In contrast to the drivers in the very competitive hail-ride-sharing market, the monopoly's output constitutes a significant portion of the total market supply; hence, by reducing or increasing their own production, they can directly influence the market price, and in cases when one firm supplies the entire market (like the 'MRT in Hong Kong'), we can say that the monopoly's supply curve is also the industry's supply curve."

↓

↓

↓

↓

--REAL-WORLD EXAMPLE--

"In 1973-74, OPEC members halted exports to the U.S. and several allies in response to Western support for Israel during the Yom Kippur War. This resulted in oil prices quadrupling, creating shortages, and rapid inflation."

• "In contrast to the drivers in the very competitive hail-ride-sharing market, who each produce almost identical services, the monopoly has little to no close substitutes and therefore, in the case where it provides a necessity, has inelastic demand, giving them tremendous market power.

• ECONOMIES OF SCALE refer to AVERAGE COST REDUCTIONS THAT OCCUR WHEN A FIRM INCREASES ITS SCALE OF PRODUCTION. 

"How are these a barrier to entry?"

New entrants will naturally be lower scale as well as face huge start-up costs that probably involve a lot of debt repayments; as such, they will not only have higher average costs but also lack the ability to lower prices in a 'price war' with an existing established player. 

"Anyone remember virgin cola?"

↓

↓

↓

--REAL-WORLD EXAMPLE--

"The small guy ain't got a chance, just ask Richard Branson!"

BRANDING involves the creation by a firm of a UNIQUE IMAGE & NAME of a product. It works through ADVERTISING campaigns that try to influence consumer tastes in favour of the product, attempting to ESTABLISH CUSTOMER LOYALTY. 

"How are these a barrier to entry?"

If branding of a product is successful, many consumers will be convinced of the product’s superiority and will be unwilling to switch to substitute products, even though these may be qualitatively very similar. Examples of branding include brand-name items (such as NIKE®, Adidas®, CocaCola®, etc.)

"Watch this video to show the power of the tech superbrands!"

"PATENTS are rights given by the government to a firm that has developed a new product or invention to be its sole producer for a specified period of time. For that period, the firm producing the patented product has a monopoly on the product."

Clearly, if you are the only owner/controller of the resource then you immediately have large market power, particularly if the good is in-demand and has no close substitutes. 

↓

↓

↓

"...and with a downward sloping demand curve, the profit maximising price is found via the AR-curve."

↓

↓

↓

"Again, just like in PC, there are 3 states of profitability in the SR for a monopolist, namely, earning abnormal profits, normal profits, or making a loss, which are illustrated below."

--PRICE & OUTPUT OUTCOMES--

• "If we return to the hail-ride market example and imagine that all the cars were owned and operated by a single firm, then the industry supply curve would become the monopolist's supply curve giving them market power and the ability to set their price using the markets MR curve."

• "Now if we put the PC and Monopoly diagrams together we can clearly see the relative price and output outcomes, with the monopolist's price being higher and its output lower than the PC market's."