industry whose products have no close substitutes. *
Monopoly exists due to several factors. First, firms become monopolists
for holding patents on production technology, or having access to
strategic resources. Microsoft and some oil companies are typical
examples. Secondly, a government may grant monopoly power to one
firm by not giving business licenses to others. VNPT was the sole
company allowed to manage and conduct activities in the long distance and
international telecom system in Vietnam. Finally, a firm may have invested
heavily in capital goods so that it can produce the entire output of the
market at a cost that is lower than what it would be if there were several
firms. This is called natural monopoly and is often found in railroad,
power, and gas industries.
A monopolist is in a unique position to manipulate market price by
limiting output. The price it sets is always higher than its marginal cost,
thus enabling the monopolist to earn extra profit. In a competitive market,
this practice is not possible because other firms will enter the market and
drive down the price towards the marginal cost. In a noncompetitive
market, however, thanks to entry barriers to the industry such as patents and
licenses, the monopolist does and will continue with its practice.
Consequently, higher price and lower quantities earn the monopolist larger
profits than would be the case in a competitive environment.
Is a monopoly a good thing or bad thing? If bad, what measures can the
government take to control it? The next article will address this issue.
* Oligopoly means a market where only a few firms account for most or
all of total industry's production.
18. ĐỘC QUYỀN PHÁT TRIỂN THỊNH VƯỢNG NHƯ THẾ
NÀO?
