Monopoly term paper Essay

Monopoly is a market structure containing a single firm that produces a unique good with no close substitutes. It controls supply of a good or service. It is where the entry of new producers is prevented or highly restricted. According to the Business Dictionary, monopolist firms keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers. Most governments try to control monopolies by imposing price controls, taking over their ownership (nationalization), or breaking them up into two or more competing firms. Monopolies exist in varying degrees (degrees (due to copyrights, patents, access to materials, exclusive technologies, or unfair trade practices) almost no firm has a complete monopoly in the era of globalization. So we can see the problem of monopoly is that it can set a higher price than marginal cost. The fact that a monopoly does not face the discipline of competition means that the monopoly may operate inefficiently without being corrected by the marketplace. An example for monopoly might be Comcast. If Comcast were the only cable television provider in your area. If you want cable, you have no choice but to go to Comcast. And because of this, they can charge any price they want. Other local electric power company, campus bookstore or local telephone service might be local monopolies as well. George J. Stigler, director of the Center for the Study of The Economy and the state, professor of economics at the University of Chicago states that a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. There are three problems that often associated with a market controlled totally by a single firm such as inefficiency, inequity and political abuse (AmosWEB Encyclonomic). Inefficiency is the most noted problem in monopoly. A monopoly charges a higher price and produces less output than perfect competition. Also, the price charged by the monopoly is always greater than the marginal cost of production. Income inequality is another problem of monopoly. Monopoly earns economic profit, consumer surplus is transferred from buyers to the monopoly. So buyers end up with less income, and the monopoly ends up with more. Monopoly is able to maintain single-seller status and market control, income continues to be transferred from buyers to the monopoly and to the monopoly resource owners.