The controversial topic of the monopolist is finally here! What is a monopoly? Yes, we all love playing monopoly deal but sadly, it’s nothing like the card game. Well, if you think about it, they can be pretty similar…
Back to the topic, what is the big hoo-haa about a monopoly? Governments frown at the rise of monopolistic firms but yet they attempt to monopolize certain industries such as utilities, media, freedom of speech, etc. (Some governments… I shan’t say who…)
The idea of being a monopoly owner is tempting. Imagine being the only supplier of a certain good, say the iPhone 10. A phone that can transform into a plane and fly you to HAWAII!! You’re the only person capable of producing such a phone. The demand for your iPhone 10 will be so overwhelming that you will find yourself increasing the price of this phone to a million dollars just to accommodate the demand which is limited by your own resources and time!
You have virtually unlimited market power in controlling the prices because nobody can compete with you for market share!
But what if this iPhone 10 can be produced for only $100? You’re charging $1,000,000???? What happens to the excess of $999,900? Yea obviously it goes into your pocket since you’re the successful entrepreneur but the government’s concern is whether this amount of money can be spread out evenly to the rest of the population. (Recall allocative efficiency)
Hopefully, that stimulates a little of thinking in you regarding why we are made to study this particular market structure. Don’t worry. I’m sure you’ll find it fun an easy to grasp! 🙂
At the end of the video, you should be able to: