1. Chapter 10
Monopoly

2. Characteristics of Monopoly
Sole supplier in the industry
Controls either price or quantity supplied
Maximises profit
Barriers to entry

3. What Are the Barriers to Entry?
Legal/statutory monopoly
Ownership of a patent/copyright
Ownership of raw materials
Economies of scale/large capital investment
Cartels/collusion
Mergers/takeovers
Fear/threats/force
Brand proliferation

4. Demand Curve Facing a Monopolist
The monopolist faces a normal downward sloping demand curve indicating an inverse relationship between price and quantity demanded.
The demand curve is also known as the average revenue curve.
When AR is reduced to sell more output, marginal revenue will be lower than AR.

7. Perfect Competition and Monopoly Compared
Efficiency
Price
Output
Profits
Demand curve

8. Advantages of Monopoly as a Market Structure
Economies of scale
Guarantee supply of product/service
Secure employment
Reduced use of scarce resources
Potential for innovation/R&D

9. Disadvantages of Monopoly as a Market Structure
Exploitation of consumers
Inefficient use of scarce resources
Produce fewer goods at a higher price than perfect competition
Less efficient/innovative

10. Who Regulates Monopolies?
Competition Act 2002:
Monopolies Division
Cartels Division
Mergers Division
Note: Deregulation is the removal of government controls from an industry or sector to allow for a free and efficient marketplace and could affect consumers, employees and companies.

11. How can state companies that are often cited as being inefficient achieve greater productivity?
Deregulation of their market
Appointing experienced entrepreneurs with proven business records to state boards may bring a different ‘value for money’ attitude that would increase profits and eliminate wasteful practices
A profit motive and performance-related remuneration
Allow the companies to form strategic alliances, e.g. Aer Lingus and JetBlue

12. How can state companies that are often cited as being inefficient achieve greater productivity? (Continued)
Discontinue unprofitable services
Privatisation
If political appointments are made, they should be based solely on the skills and knowledge that are needed for the industry
An absence of government interference in the day-to-day operations and management of the company, as a different skillset needs to be employed in running a business

13. Benefits of Privatisation
Lower prices
A better service
Revenue from the sale benefiting government
finances

14. Drawbacks of Privatisation
The loss of unprofitable services
The deterioration of standards
Overseas buyers may become owners of previously owned national assets, which could see control going out of the state