Monopoly Market

Pre se n te d B y: K rip a M e h ta
N a vd e e p S a ch d e v
A ja y V a rm a
Tu sh a r K a th u ria
G a u ri Pe n d a lw a r
Antitrust Law
Competition and Anti Trust Law
in India
In India the Monopolies & Restrictive Trade
Practices (MRTP) Act was enacted in 1969, on the
basis of US & UK Models.
The Act states that it is ”An Act to provide that the
operation of the economic system does not result
in the concentration of power to the common
detriment, and is for the control of monopolies,
prohibition of monopolistic and restrictive trade
practices and for matters connected therewith or
included thereto.”
Barriers of Entry for New
Firms in a Monopoly Market
Barriers of Entry
A monopolist is the sole supplier of a product with
no close substitutes
Barriers to entry are the restrictions on the entry of
new firms into an industry.
 Control of an essential resource
 Economies of scale
 Legal restrictions
 Network Externalities



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 Control of Essential Resources
Largely found in Natural Monopoly & Geographical
Monopoly.
Firms hold the control of some non – reproducible
resources those are either critical to production or
limited & expensive.
 For example, OPEC Countries have large
resources of Crude Oil, thus they control the trade
of crude oil to other countries in the world.
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 Economies of scale
It is defined as situation in which output can be
doubled with less than double cost of
production
As the output increases the AC declines because
 The firm operates on large scale, so it can utilize
specialized workers, machinery etc
 Flexibility in operations, by varying the
combinations of inputs utilized to produce the
output, Firms can make the production process
more effective
 The firms may be able to acquire some production
input at lower cost due to bulk quantity, hold on
 Continue… Economies of Scale for a
firm
Introduction

Maturity
Development

Decline
Growth  Phase – Development,
Introduction
 Quantity – Q, Price – C
 A
Sale

Time

Phase – Growth , Maturity &

Decline
Quantity – Q1, Price – C1
*LRAC – Long Run Average Cost
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 Legal Restrictions
One way to prevent new firms from entering a
market is to make entry illegal
Patents, licenses, and other legal restrictions
imposed by the government
 for example, technology patent for computers
Governments often confer monopoly status by
awarding a single firm the exclusive right to
supply a particular good or service
 for example, broadcast of TV or Radio Channel



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 Network Externalities
This type of Barrier Exist when the firm and its
network members increases its value to current
and potential members
The value to consumers of a good rises as the
number of people who also use the good rises

For example, computer operating systems
Microsoft Windows
 De Beers have well controlled & effective SCM from
Raw material supply & processes – distributors – jewelry
shops

Sources of Monopoly Power
Sources of Monopoly Power
Monopoly power is the ability to set price above
marginal cost
The less elastic the demand curve, the more the
monopoly power (inverse relationship between Demand
elasticity & monopoly power)
The three factors which determine the firm’s
elasticity of demand
The elasticity of the market demand
The number of firms in the market
The interaction of the firms with each other


Conclusion
Comparison with other types of
Market
Type of No of Type of Pricing Demand Market AR , MR
Market Sellers Goods Curve Entry Relation
to new
firms
PCM Large Perfect Unique Easy, Free AR = MR
Substitute Horizontal
Firm is a
Price
Maker
Monopolistic Large Close Different Downward
Perfectly Easy AR > MR
Substitute Prices Sloping
Elastic
Relative
Oligopoly Few Close Different Elastic
Downward Difficult AR > MR
Substitute Prices Sloping
Relative
Inelastic
Monopoly Single No Different Downward No Entry AR > MR
Substitute Prices Sloping Very
Perfectly difficult
Inelastic
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Advantages of Monopoly
May be appropriate if Natural monopoly
Encourages R&D
Encourages innovation
Economies of scale can be gained – consumer
may benefit
Producer always try to maintain the quality of
the product
Many times quality of the product is really
superior or worth to the price

Disadvantages of Monopoly
Exploitation of consumer – higher prices
Potential for supply to be limited - less choice
The power of existing sources make the entry
of new firm difficult