MEANING OF PURE MONOPOLY:
1: Perfect competition is the antithesis of pure
monopoly.
It refers to a situation in which a single firm has
complete authority over the production and supply of a product, representing
the entire industry. In other words, there is no distinction between the firm
and the industry.
2: There are no
close substitutes for the product in the entire market.
3: The cross-elasticity of demand for the good's output
is zero.
4: Such a firm does not compete with any other firm in
the market, and new firms are unable to enter the business.
5: Since a single firm controls the supply of the good in the entire market, it has the power to increase or decrease the price of the commodity at its own discretion. When the firm wants to increase production and quantity sold, it reduces the price. Conversely, it can increase the price by reducing production. Thus, the demand curve moves from top to bottom, left to right, and has a negative slope.
Upon closer examination, this curve represents
the average revenue (AR) curve of the monopolistic firm. Both the average
revenue (AR) and marginal revenue (MR) curves of a firm under monopoly have a
downward trend from top to bottom and left to right. Therefore, the MR curve is
always below the AR curve. Hence, we can say that a pure monopoly exists when
there is one and only one seller in a well-defined market.
In the words of Professor Triffin: "Pure monopoly is
defined by the cross elasticity of demand for the monopoly product being
zero."
Although monopoly situations rarely occur in practice, they are possible under certain circumstances. Often, the government grants monopoly powers to an organization for an important product or service. For example, in Pakistan, WAPDA has a monopoly on electricity supply, and the Pakistan Railway Department has a monopoly on railway services.
Similarly, the Telephone and Television Corporations are state-owned monopolies in Pakistan. It should be noted that monopoly does not depend on the size of the firm; it can also be a small firm that faces no local competition. For instance, if a single bus company provides transportation in a rural area, it may have a monopoly status, despite its size. Examples of countries with monopolies in specific industries include South Africa monopolizing plum production and United India monopolizing cotton seed production.
HOW DOES A MONOPOLY COME INTO BEING:
The following are reasons why a monopoly can exist:
1: NATURAL CONDITIONS:
Some countries possess land, climate, raw materials, or
other natural conditions that are highly suitable for the production of a
particular commodity. As a result, they acquire a monopoly over its production.
For example, Brazil has a monopoly on coffee production, United India has a
monopoly on jute production, and South Africa has a monopoly on diamond
production.
2: SOCIAL WELFARE:
At times, the government delegates the responsibility of
providing a single commodity or service to a single organization for the
welfare of society and the betterment of the people. This allows the
organization to serve the people without facing competition. For example, in
Pakistan, the Railway has a monopoly over railway services, WAPDA has a
monopoly over the distribution and production of electricity, and Municipal
Corporations have a monopoly over water supply to cities.
3: LEGAL PRIVILEGES:
When a firm or individual has legal rights to produce a
product, preventing others from participating in its production, it is referred
to as a legal monopoly. For instance, if a person legally protects their
invention or authorship through a patent, they obtain a legal monopoly.
4: TECHNICAL KNOWLEDGE:
Sometimes a firm possesses specific technical knowledge
or exclusive production techniques, granting them a monopoly.
5: UNION OF EMPLOYERS:
In many cases, a group of employers attains a monopoly
over the production of a specific item and determines its price and production
through mutual agreements. They achieve this through contracts, such as price
contracts in a pool market, sharing agreements for different parts of the
market, cartels, resource sharing management agreements, or trusts.
6: BILATERAL MONOPOLY:
A market in which only one firm has the power to produce
or sell a product, while the sole buyer of the product is also a monopolist, is
called a bilateral monopoly. For example, if only one firm in a country
produces copper, and this raw material is used by a single firm, it would be
considered a bilateral monopoly. The equilibrium in such a market does not depend
on demand and supply. Instead, economic experience describes a range within
which the price of the commodity is determined.
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