Your consulting firm was just granted an exclusive contract for Vanda-Laye Corporation. You now must decide your pricing policy. The firm will encounter no fixed costs, and all reven

Monopoly.html

Monopoly

A monopoly is a market structure in which there is only one seller of a unique product. Entry into the market is usually blocked by a number of possible factors, for example, copyrights, patents, ownership of raw materials, and government regulations. In addition, most monopolies that do exist require a substantial start-up investment, which, in most cases, is a significant barrier to entry into the market.

Although not all companies are monopolies, many possess monopoly power to some degree in the market because of the nature of their products. For example, Microsoft Corporation is not structured as a monopoly. However, because of its market power, it has been challenged in courts for acting as a monopoly because of its pricing and output decisions in the area of operating systems and related software.

The pricing and output decisions of monopolists are the same as those of a competitive company. That is, monopolists equate their MC and MR, which, in turn, determines the profit-maximizing output and price. The major difference in this regard is that, as with a competitive company, there is no competition to erode the profits of a monopoly.

Even though a company may have a monopoly on a product because of a patent, it still must operate at a point where its marginal cost (MC) is equal to its marginal revenue (MR) and charge the indicated price. The product will still compete for the customers’ money, regardless of the market structure.

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Antitrust Policies

Antitrust laws are designed to prevent companies from using their market power against consumers and other companies. The Sherman Act and the Clayton Act represent the basis of antitrust policies in the United States. There are several adverse effects of monopolization of markets.

• In some cases, competition is not efficient in terms of resource allocation and final costs to the consumer.
• Sometimes competition is more efficient for one company to supply goods or services to the final consumer.
• Often competition is most efficient if one large company, rather than several smaller companies, provides a service.

Larger companies enjoy economies of scale, achieving lower unit costs and a lower per-unit price. Economists call this situation a natural monopoly. Here, the government uses regulation to check competition. This regulation can take many forms, such as public regulation. This is a situation most utility companies find themselves in. Under public regulation, pricing decisions by management must be justified and presented to the regulatory agency for approval. In its most basic sense, public regulation requires that a utility company prove that its total costs have increased and a normal profit is not being earned and therefore the increase in price is justified. The alternative to the regulation for competition is public ownership of an enterprise. The local mass transit, the postal service, and garbage collection are examples of public ownership of an enterprise.

Monopolies are illegal in many countries, such as the United States. The reasons for this include:

• Consumer protection
• Unfair business practices
• Misallocation of resources

Oligopoly.html

Oligopoly

An oligopoly is a market structure in which there are only a few sellers, or a few sellers who dominate the market, together producing a major share of the output. These companies sell similar products, and non-price competition is widespread. The retail gas market is a good example of an oligopoly because a small number of companies control a large part of the market.

In an oligopoly, management of individual companies must make pricing and output decisions, anticipating and taking into account the reaction of their competitors to those decisions. This characteristic of an oligopoly is also referred to as mutual interdependence.

Oligopolistic companies produce different products and have considerable control over the prices and quantities produced. However, because there are only a few companies in the market, other companies immediately react to any price strategies or changes. An example is: if Company A initiates an advertising campaign, Company B will react with a campaign of its own, negating the original effort of Company A. The barriers to entry in oligopolistic markets are usually high, preventing new entrants into the market and making economic profits possible.

In an oligopoly, any strategy, price or non-price, a company employs will be known and reacted to immediately by its rivals.  It can be difficult to estimate how rivals will react to these changes.