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Does Pure Monopoly Exist


Lisa Ramos
ECO 100 Survey of Contemporary Economic Issues
Instructor: Sangita Patel
February 17, 2013

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Pure monopoly in the world of business sector consists of a company with the
characteristics of one that is a single seller of a particular product, where there are no close
substitutes from another manufacturer. They determine the price of the product because they
have control over the quantities that are produced and entry or exit is blocked for anyone wanting
to gain some market share of the product. Pure monopolies are rare, but they do exist.
Examples of pure monopolies are government owned or government regulated public
utilities natural gas and electric companies, the water company, the cable TV company, and the
local telephone company professional sports teams. (Brue, S. L., & McConnell, C. R. 2010)
Most of these types of monopolies exist at the local level because of geographic location. For
example, living in the Detroit, Michigan area our professional sports teams consist of the Lions,
Pistons, Red Wins and Tigers. Although you can be a fan an live somewhere other than Detroit,
you can even watch these teams play somewhere other than Detroit, if you want to see them on a
regular basis whether live or even on TV, you must live in the Detroit area. There are also many
near-monopolies such as Central Microprocessors (Intel), First Data Resources (Western
Union), Wham-o (Frisbees), Brannock Device Company (shoe sizing devices), and the DeBeers
diamond syndicate are examples of "near" monopolies. (Retrieved from:
http://staffwww.fullcoll.edu)
Barriers to entry is a major reason why monopolies exist and may be of different types
economies of scale constitute one major barrier. They occur where decreases in unit costs depend
on output size. A large firm with a large market share prevents newer smaller firms from
entering the market because the smaller firm cannot afford to enter the market and gain market
shares. Barriers to entry also exist in legal forms as patents or licenses. Patents grant the inventor

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the exclusive right to produce a product for 20 years. Patents have figured prominently in the
growth of modern-day giants such as IBM, Pfizer, Kodak, Xerox, Intel, General Electric, and
DuPont. (Brue, S. L., & McConnell, C. R. 2010)
Licenses are granted by the government and allow only one or few firms to operate in a
given market. At a national level, the Federal Communication Commission licenses only so
many radio and television stations in each geographic area. . (Brue, S. L., & McConnell, C. R.
2010) Taxi cabs are also an example of licenses issues that monopolize that industry in major
cities. New cab companies are unable to enter the industry to help reduce prices because of
these licenses. In a few instances, the government might license itself to provide some product
and thereby create a public monopoly, for example, in some states only state-owned retail outlets
can sell liquor. Similarly, many states have licensed themselves to run lotteries. (Brue, S. L., &
McConnell, C. R. 2010)
In monopoly profits are not always the case, losses can also occur, particularly in the
situation where the government demands low per unit prices such as in utilities or when a
monopoly enterprise can suffer a loss because of weak demand and relatively high costs.. If
monopoly creates substantial economic inefficiency and appears to be long-lasting, antitrust laws
can be used to break up the monopoly.
Monopolist can also increase their profits by price discrimination which is when they
charge different prices while their costs remain unchanged. It is a common practice and is rarely
challenged by the government. (Brue, S. L., & McConnell, C. R. 2010) Airline pricing is an
example of price discrimination. Executives who travel on a regular basis tend to pay the higher
pricing to fly.

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Monopoly is not common in the US. Advances in technology have proven that
monopolies cannot hold a barrier to competitors. For example, years ago, there was no substitute
for the telephone. Nowadays, cellular phones are very popular. It creates a substitute for your
house phone, causing the traditional telephone companies to lose their monopoly position.
Another example would be the U.S. Postal Service, with technology and email services, one can
easily write letters and even pay bill on-line rather than send via post office. Patents expire in
time and cannot hold anyone back from doing the same thing. So although there are monopolies
out there, over time the barriers set up to prevent entering will no longer exist.

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References
http://alpha.fdu.edu
Brue, S. L., & McConnell, C. R. (2010). Essentials of economics (Ashford Custom 2nd ed.).
New York: McGraw-Hill/Irwin.
http://staffwww.fullcoll.edu/fchan/Micro/4pure_monopoly.htm

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