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Definition
Monopoly is the exclusive possession or control of the supply of or
trade in a commodity or service according to Oxford dictionaries. Market
situation where one producer (or a group of producers acting in concert)
controls supply of a good or service, and where the entry of new producers
is prevented or highly restricted. Monopolist firms (in their attempt to
maximize profits) keep the price high and restrict the output, and show little
or no responsiveness to the needs of their customers. Most governments
therefore try to control monopolies by (1) imposing price controls, (2)
taking over their ownership (called 'nationalization'), or (3) by breaking
them up into two or more competing firms. Sometimes governments
facilitate the creation of monopolies for reasons of national security, to
realize economies of scale for competing internationally, or where two or
more producers would be wasteful or pointless (as in the case of utilities).
Literature Review
Wang and Tan on their “The Influence of Product Market
Externality on Dynamic Decisions of Monopoly” done some research about
The externality of the goods in the market affects the diffusion process of
the product, and also affects the price strategy and advertising strategy that
manufacturer makes in the diffusion process of the product. Positive
externality can accelerate the speed of the product diffusion, increase
product sales, and save the cost of advertising in order to increase
enterprise’s profit; Strong negative externality reduces product sales,
increases enterprise’s advertising costs and makes losses. Under the market
of the monopoly structure, considering the effect of products’ externality,
product price and advertising investment on the product’s demand, builds
the dynamic decision model of the product and uses the control theory to
get the manufacturer’s optimal price strategy and optimal controlling
strategy of the advertisement expenditure, and relatively analysis the
changing trend of optimal controlling strategy, the product’s diffusion
process and manufacturer’s profit on the different condition of positive and
negative externality, and obtains some conclusions which are provides
theory support for the decision enterprise makes. They made conclusion
that The manufacturer could use advertising to accelerate product diffusion
and increase product sales in the early stage of the product entering the
market. When consumers buy and use the products, products will have
externality in the market that affects product diffusion and firm decision. So
it is much valuable to study the effect of externality on dynamic decision
making for monopoly. The dynamic model is built including price,
advertising level and externality in this paper, using the control theory to
calculate the optimal price, advertising level control strategy and the actual
product total demand, and also analyzes the change trend of relevant
parameters in different conditions. The main conclusions are: when the
product has different market externalities, the optimal advertising
investment level and the optimal price have different trends with the
increasing of external strength; especially, whether the product has positive
market externality or negative market externality, the ratio of the optimal
advertising investment level to the optimal price decreases with the
increasing of external strength. Under different conditions, the effect of
market externality on product sales is different. Research on the influence
of product monopoly externality on dynamic decision can provide a
theoretical basis for monopoly that makes dynamic decision and control in
different sales periods. The monopoly should make full use of the products’
positive externality to save costs and increase revenue.
Ágoston, KC on his “Pricing of a Risk Averse Monopoly in the Presence
monopoly. Since the focus is on the risk averse attitude of the firm, he ignore cost
in his model. Demand is considered to be stochastic demand: as price decreases,
the expected number of customers increases, but it has a variation. Although
demand is uncertain, it relates to the aggregation method of individual demands
and the individual demand has the usual form. In his framework a risk neutral (or
profit maximizer) monopoly does not change the product’s price as the number of
clients increases. On product markets the risk averse monopoly with DARA utility
function always increases the price as the number of clients grows, but in
insurance markets the implication can be the opposite: the price of insurance may
decrease as the number of clients increases. He also make a conclusion that he
presented a microeconomic framework, in which a risk averse monopoly’s
behavior can be investigated. He proved that in a product market a risk averse
monopoly applies a lower price than a risk neutral (profit maximizer). If the risk
aversion decreases with wealth (DARA), the market price will increase with the
market size. In the insurance market the price can decrease or increase with the
market size even for utility function with DARA property.
Extension of the Income Gap under Monopoly” done a research which constructs a
model of a monopoly where investors are also actors, and shows that, in contrast to
traditional models, this model admits the welfare improvement caused by
monopoly. This study also reveals that if a huge income gap exists in the initial
stage, then monopoly exacerbates the expansion of the income gap caused by
market trades. Moreover, we show that this exacerbation occurs in general
situations under some additional (but natural) assumptions. As a conclusion, They
constructed a model of a monopoly with investors, and showed that monopoly did
not necessarily decrease total welfare. Meanwhile, under mild assumptions
monopoly exacerbated the expansion of the income gap. Therefore, we revealed a
new aspect of the negative influence of monopoly.
Russia : State Regulation Problems” made an article that has a purpose to reveal