– A Monopoly (Pure Monopoly) is defined as having only one seller in the market.
– A legal monopoly is defined as a firm controlling more than 25% of market share under UK competition regulation.
Monopoly Examples & Explanation:
Since there is no competition in the market, monopolies have full control on how much they charge consumers for their goods (i.e. are price setters/makers). To maintain this, monopoly markets have high barriers to entry meaning it is difficult for new firms to enter into the market. Monopolies tend to restrict output and raise market prices to maximise profit, and as a result create a welfare loss to society through market failure and inefficiency. An example will be Transport for London (TFL) which provides the London Underground railway service. They control the price for tickets and there are no close substitutes for how it is designed to make you sweat. New companies cannot enter the market and provide railway transportation due to the initial cost of building a railroad.
Monopoly Economics Notes with Diagrams
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It can be argued that the Apple app store is a monopoly. In this case, iphone app makers are consumers of Apple, as they pay Apple a part of their revenues to use the Apple app store. However, there is no alternative way for them to reach iphone users. It is also very difficult to create a store for apps due to patents and number of users meaning there is high barriers to entry. Amazon is an interesting example as it can be regarded as a monopoly in e-commerce, but have not maximised profits in its early years. The size of Amazon allows it to take advantage of economies of scale, meaning lower production costs so they can charge consumers less. However, will they have enough incentive to do so in the future?
The left video explains the monopoly market structure, the right evaluates the advantages and disadvantages of the monopoly market structure.
Monopoly Multiple Choice Questions (A-Level)
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Monopoly Essay Questions (IB)
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