What Is a Monopolistic Market?

A complete monopoly market refers to a market structure in which there is only one supplier and many demanders in the market. There are three points in the assumption of a complete monopoly market: first, there is only one manufacturer in the market that produces and sells goods; second, there is no close substitute for the goods produced by the manufacturer; and third, it is extremely difficult for other manufacturers to enter the industry Or it is impossible, so monopolistic manufacturers can control and manipulate market prices.

A complete monopoly market refers to a market structure in which there is only one supplier and many demanders in the market. There are three points in the assumption of a complete monopoly market: first, there is only one manufacturer in the market that produces and sells goods; second, the goods produced by the manufacturer do not have any close

1. The number of manufacturers is unique. A manufacturer controls the entire supply of a certain product. In a monopoly market

There are many reasons for the formation of a monopoly market, and the most fundamental reason is to establish and maintain a legal or economic barrier. In order to prevent other companies from entering the market, in order to consolidate the monopolistic position of monopolies. As the sole supplier in the market, a monopoly enterprise can easily control the quantity of a certain product in the market and its market price, so that it can continuously obtain

Assume that there is a demand curve for a monopoly manufacturer with Q = 1000-10P and a cost function C = 40Q. Then (AR) P = 100-0.1Q, total profit TR = PQ = 100Q-0.1Q ² , marginal revenue MR = 100-0.2Q, and marginal cost MC = C / dQ = 40. The sufficient condition for profit maximization is MR = MC, so the monopoly firm will price 70 and the output is 300. However, the manufacturer can actually continue to produce, because the price P is far greater than the marginal cost40. When Pareto optimality is achieved, the price is equal to the marginal cost, so 100-0.1Q = 40. At this time, the output of the perfect competitor is 600. But because the total cost of multi-production will rise, resulting in reduced profits. For perfectly competitive markets, consumer surplus is the ADEF portion of the chart below. The consumer surplus in the monopolistic competitive market is the ABC part of the figure. Therefore, when the monopoly firms are priced according to the maximum profit, the consumer surplus reduces the trapezoidal BCDEF portion, and the manufacturer's profitable portion is a rectangular BCDE. So social welfare loss CEF = (P1-P2) × (Q1-Q2) / 2 = (70-40) × (600-300) = 5000.

Complete Monopoly Market Benefits

1. Complete monopoly market has the possibility to promote the improvement of resource efficiency

In order to form a complete monopoly market, it is necessary to own and invest a large amount of fixed assets and funds. As long as the effectiveness of the large amount of fixed assets and funds invested is fully utilized, the enterprise has the ability to carry out large-scale production and can conduct large-scale production. Product output, increase product variety, and provide full supply. At this time, the output is higher than that of the completely competitive enterprise; on the other hand, reduce the consumption of resources and minimize the cost of the product. At this time, the cost of the product is lower than the cost of the product when fully competitive. On the one hand, it uses highly efficient production equipment and Advanced production technology (because only in this way can increase production and reduce costs), thereby promoting the improvement of resource efficiency. Considering the economics of large-scale production entirely, this possibility exists. At the same time, the monopoly enterprises were formed in the early stages to improve resource efficiency and economic efficiency of enterprises through large-scale production.

2. Completely monopolizing the market can stimulate innovation

Innovation refers to the use of some new knowledge for the first time in the production process to develop a new product, new labor service, or a new processing technology. There is a close relationship between a completely monopoly market type and innovation. A patent is a reason for the formation of a monopoly. As long as a new product, service or new processing technology is created and a patent is obtained, a monopoly on this product, service or processing technology will be formed; at the same time, only innovation will be patented. Only by protecting and granting innovators monopoly power can innovation be promoted. This is because the completely monopoly market grants innovators monopoly exclusive rights through patents, so that innovators enjoy the economic benefits brought by innovation within a certain period of time. Therefore, it will stimulate more enterprises to carry out innovation activities, and at the same time, it will also stimulate monopolies to continue to invest heavily in scientific research and development, which can promote the development of larger-scale and higher-level innovation activities, thereby promoting the development of society.

Disadvantages of completely monopolizing the market

1. Completely monopolizing the market will cause losses in market competition

The goods, services or resources that completely monopolize the market are provided by one supplier, that is, monopolized by an enterprise. In this type of market, due to legal and natural restrictions, new enterprises cannot enter the market, and the market is completely excluded. competition. Market competition is the driving force for market operation and development and technological progress. Market competition is related to the survival and destiny of enterprises and the future of development. Therefore, market competition will force enterprises to continuously improve production technology, increase labor productivity, reduce individual labor consumption, and promote the entire society. Technology is developing rapidly. After a completely monopoly market eliminates market competition, there is no market competition pressure for a monopoly enterprise. It can also obtain high monopoly benefits without improving production technology, because the purpose of a monopoly enterprise is to maximize profit. Improving production technology can promote the goal of profit maximization. When it is realized, it will improve the production technology, and when it can achieve the goal of maximizing profits without improving the production technology, it will not improve the production technology. In this way, it will cause a certain loss of social competition and cause the society to lose technological progress to a certain extent. Driving force.

2. Completely monopolizing the market will cause a loss of production efficiency

Under the conditions of a complete monopoly market, monopolistic enterprises have the conditions and capabilities for large-scale production. If monopolistic enterprises carry out large-scale production, they can reduce product costs, increase product output, and obtain the best production efficiency. While gaining huge profits, it also promotes the improvement of social production efficiency. However, monopolistic enterprises have monopolized the market supply, and there is no supply competitor. Therefore, they can obtain rich profits by reducing output and increasing product prices, without having to spend a lot of investment to purchase advanced machinery and equipment and technology to improve production efficiency. Ways to increase profits. For monopolistic enterprises, it is easier to profit by reducing output and increasing product prices than by increasing production efficiency. At the same time, the cost of profit is lower, so there is no need for monopoly enterprises to improve production efficiency. If monopoly enterprises in various industries can obtain rich profits only by reducing output and increasing product prices, then no one will try to improve production efficiency. In this way, it will inevitably cause a loss of social production efficiency.

Under perfect competition, each enterprise produces at the lowest point of the long-term average cost and the short-term average cost. Under the condition of complete monopoly, although the manufacturer produces balanced output at the lowest average cost of the selected production scale, this is not the scale at which the product is produced at the lowest average cost possible. If a monopoly expands its long-term equilibrium output, it will be able to produce more output at a lower average cost.

3. A completely monopoly market will cause a loss of social output

Under the condition of a completely monopolized market, the output produced by a monopoly enterprise determines the total product supplied by the market because the monopoly enterprise completely monopolizes the market supply. Generally speaking, the output of the monopoly market is lower than that of the completely competitive market, because under the conditions of the completely competitive market, the enterprise produces according to the output determined by the lowest point of average cost, that is, it produces at the optimal output, and the output of social products . Under the condition of complete monopoly market, monopoly enterprises produce according to the output determined by profit maximization, and the output determined by profit maximization can only be a lower output. Because a monopoly company monopolizes the entire market supply, only when the output is reduced to reduce the number of products supplied to the market, the product will be in short supply. At this time, the product can be sold at a high price in the monopoly market. Maximum profit. The production scale determined by this profit maximization is not the optimal production scale for society, and its output is not the social optimal output. In the case where the maximum profit determines the output of the monopoly enterprise, because the production conditions and production capacity of the monopoly enterprise do not fully play their role, the monopoly market first caused the loss of social production conditions and production capacity, and ultimately caused the loss of social output. .

4. Completely monopolizing the market will cause loss of consumer interests

Under the conditions of a complete monopoly market, consumers are forced to accept high market prices controlled by monopolistic enterprises because monopolies monopolize the market supply and control market prices by virtue of monopoly power. In this way, consumers pay a high price for products and services, the price and its value are seriously deviated, and the interests of consumers and their rights are seriously deviated, which will inevitably cause significant losses of consumer interests. In essence, the various losses that monopoly enterprises cause to consumers are the plunder of consumer interests and power by monopoly enterprises. The behavior of monopoly enterprises causing losses to consumers not only violates the basic principle of equivalent exchange under market economy conditions, but also hinders social progress and development. At the same time, it is difficult for monopolistic enterprises to have a correct understanding of and actions to improve consumer behavior. Therefore, the government must take strong measures to intervene. Such as adjusting the product prices of monopoly enterprises, or even directly pricing them, levying reasonable high taxes on them, thereby reducing the monopoly profits of monopoly enterprises; strengthening the supervision and punishment of monopoly enterprises, and timely detecting and stopping monopoly enterprises from consumers Damage and so on. ^[6]

Summary: A completely monopoly market is an extreme market type. This market type is only a theoretical abstraction, which is almost impossible to exist in practical economic practice. Because in real economic practice, most monopolies are always subject to interference and adjustment by the government or government agencies in various aspects, and it is not possible for a monopoly company to completely monopolize the market. Of course, if the government does not intervene in or monopolize the monopoly enterprises, the possibility of monopolizing the market and harming the interests of the society and consumers may arise at any time.

Even if a complete monopoly market is almost non-existent in practical economic practice, it is of positive significance to study a completely monopoly market. For example, studying a monopoly market can facilitate understanding of the various economic relationships that occur under the conditions of a completely monopoly market, which is conducive to using this theory to study how the behavior of market entities is optimized under the conditions of a realistic market type. It highlights the need for government intervention and regulation of monopoly behaviors, and the important role government intervention and regulation activities play in the normal operation of the market and the coordination of the interests of market subjects. ^[5]