TENAGA NASIONAL BERHAD (TNB)

Market structure
Monopoly firm exists as a single firm who produce goods and services with no close
substitutes. In this market structure, the entry of other firms is restricted.
One of the monopoly company in Malaysia is Tenaga Nasional Berhad (TNB). Even if
other big companies like YTL have huge capital to start up their own utility company ,but
they still cannot compete with TNB because TNB is the only one distributor of electricity
supply in Malaysia. In other words,TNB have extensive market control, so they are the price
maker and they earn supernormal profit in the long run.

Characterisitc of the market structure

1. One producer and a large number of buyers.
In monopoly, it exists when there is only one producer of a product or services.The
difference between a firm and an industry does not exist in a monopoly sine there is
only one producer. An example, TNB is a firm as well as an industry in itself.

2. Product has no close substitutes.

In this market structure, there should not be any close substitute for the product
sold by a monopolist. If there are any substitutes, then the monopolist cannot control
over the industry.
For example, the consumers are not able to switch between substitutes of
electricity since Tenaga Nasional Berhad is the only supplier of transmission and
distribution of electricity in this country.

3. Price maker.
In a perfect competition, the monopolist is a price maker since there is only one
producer and it has the power to control the price in the market.
As example, since TNB is the only supplier of transmission and distribution of
electrivity, so they can make a price with intervention of government to earn their
supernormal profit.Therefore, the consumers are not very sensitive to price changes
because it is one of the necessity goods.

4. Restriction on the entry of new firm.

In a monopoly market, there will be a monopolist faces no competiton because of
restriction on the entry of new firm..
For example, a licensed barrier of entry formed by the Malaysia government itself.
This license obtained by TNB allows it to be the one and only distributor of electricity
supply in Malaysia where the other electrical industry in Malaysia are not allowed to
distribute electricity.

5. Barriers to entry.
One of the type barriers to entry when a monopoly status can be maintained through
control over the supply of raw materials.
An example, TNB has the ownership on scarce raw materials of coal to generate
electricity because this is the cheapest method to produce electricity in Malaysia.
Currently,these coal is fully imported from other countries and this plays a big part in

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making effective barriers to entry because no firms have the power to obtain scarce
raw materials to compete with TNB. It shows that they have complete control over
the industry.

Demand and determinants

1. Factors influence current demand

i. Consumer’s income.

Increase
Other things being equal, when income increase, consumers demand for
more goods and services will increase.
An example, the demand of using electricity is increase by the higher
income group because they are less sensitive towards price changes of
electricity . So,it will be supernormal profit for TNB.

Decrease
If the consumer’s income decrease, the demand for goods and services will
decrease.
An example,the demand of using electricity is decrease by the lower
income group because they want reduce their budget with using less
electricity in the household.

ii. Population.

Increase
Demands depends on the size of the total population in the market . A large
population with a high rate of growth creates a greater demand for goods and
market.
For example, when the population in Malaysia increase,the demand for
electricity by Tenaga Nasional Berhad will increase too.It will make TNB
earns profit continuously.

Decrease
A small population with a lower rate at growth creates a smaller demand for
goods and market.
For example, when the population in Malaysia decrease,the demand for
electricity will decrease too.

iii. Festival season

Increase
Festival season in Malaysia such as Hari Raya Aidilfitri, Chinese New Year
and Deepavali happen once a year. During these festival, the demand of
electricity is increase than usual because the consumers will use more
electricity in a long period of time. So,it will increase the cost of electricity by
TNB.

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 Decrease
If there is no festival season, the demand of electricity is less than during the
festival season .

iv.