11

MONOPOLY : PRICE DETERMINATIO CONTROL

DISCRIMINATION AND MONOPOLY

made
monopoly
is
word
A monopolist is a seller in:a particular market. The
single otes
conno te
while 'poly' of
up o f twvo syllables Mono' and Poly'. 'Mono' means
single, degree
with the
in economics is of competition and the
connected

selling. Actually the termthemonopoly

market. The absence of any form
competition prevalent in
fundamental

firm is the
a single close
existence of pure or absolui control of production by monopolist
has n o
of a
racteristics of perfect monopoly. The product their success in
discouragig
The maintenance of this position depends on in i n d a
substitutes. receivers produced
An example of monopoly is the telephone
potential rivals.
sector plant.
by the public DEFINITIONS OF MONOPOLY
are given below:
Some of the definitions of monopoly effective price coniro
is used to cover any
1. Prof. Thomas : "Broadly the term
it is used to mean
a combination o
or demand of services or of goods se-vices.
whether supply of commodities o r
merchants to control the supply price demand
manufacturers o r
is confronted with a falling
is a seller who
2. Lerner: "A monopolist
curve for
their product." product
therefore, is a firm producing
"A pure monopolist, in the
3. K. E. Boulding: the products of other firms, efective
substitutes among other firms
which has no effective abnormal profits,
the monopolist may be making
though which might
sense that even substitutes commodities
cannot encroach on
profits by producing
these
the product of the monopolist." in
entire purchasers away from zero elasticity of demand
"Pure monopoly implies
4. John D. Sumner: characteristic of pure
demand which is
contrast to the infinite
elasticity of
competition." seller and monopoly power is based
Benham: "A monopolist is literally a
5.
entirely on control over supply. as "a market structure in which
a single firm is
Thus we can define monopoly
no close substitutes."
Selling a product for which there are
FEATURES OF MOONOPOLY

are as follows:
The main features of monopoly single producer of the
there should be a
1. Single Seller Under monopoly
commodity. There firm, the distinction
being only one
2. Monopoly is also an Industry:
an industry.
exists. Monopoly firm is also
Detween fim and industry no longer
of a commodity are identical and
3. Substitute oftheCommodity: All the units
Tnere are no close substitutes of that commodity.
restriction on other firms to enter the market.
. No entry of new firms There is
 Economics
Publications Micro
SBPD
156 5. Prices Control : Another distinct feature of monopoly firm is that iit can fix

of the commodity
or the output. oys it
the price
freedom and
independence in fixing
both. not
output but
either the price or
and Marginal
Revenue Curves:
1
Under monopoly: aàge
Different Average are
curve and do
separate
6. and marginal
revenue
curve
or
demand
revenue

sloping. Small or Marginal:

This is so because buver if a
tha
the monopoly firm only. Therefore
Costs are very
7. Selling it from s
that product, he has to buy costs, i.e., costs
to buy need of incurring Selling ts cn
competitionand hence, no
no
advertiscmems etc.
demand curve facing a monopolist slopes
downward
c u r v e : The
8. The demand sell On the other han
his product, he can
m o r e .

if he sets a lower price of

This means
able to sell less quantity of his product
sets higher price of his product, he will be
if he a CLASSIFICATION OF MONOPOLY
has complete control
In pure monopoly a firm
(1) Pure and imperfect monopoly : with every other product is
and market. The cross-elasticity of demand
over the supply 'he cross-elasticity of demand
"Pure monopoly is that where
zero. According to Triffin,
is zero." He has no fear
of the entry of rivals. Under
of the monopolists' product
has to face competition from potential rivals,
imperfect or simple monopoly the producer of a siraple monopolist is low but not
The cross-elasticity of demand for the product
zero. In other words, a simple monopoly
is an imperfect one. It is a strong monopoly
but not perfect.
(2) General monopoly versus discriminating two monopoly: Under general
monopoly the monopolist does not differentiate
between buyers in changing price.
on the other hand
He fixes a uniform price for all buyers. Discriminating monopolist
same product for
differentiate between two buyers. He fixes different prices for the
different consumers.
(3) Private and Public monopoly : Private monopoly exists when the ownership
of the firm, producing a monopolistic commodity is in the hands of an individual
maximise
entrepreneur or an organisation. The sole aim of a private monopolist is to
the net monopoly profit. On the other hand, the ownership of public monopoly lies with
the government or public corporation.
REVENUE CURVES OF A MONOPOLY FIRM
Or
AVERAGE REVENUE AND MARGINAL REVENUE
CURVES UNDER MONOPOLY
As stated above, in case of monopoly the distinction between the firm and the
industry disappears. The monopoly fim is the industry. Therefore, the demand curve
for the firm is identical to the industry
(Market) demand curve.
A market demand slopes
curve
downwards to indicate that more quantity o
a
commodity is demanded at a lower price and
vice versa. The market demand curve facing
Ea 1 the monopolist constitutes his average
P

P
T AR
revenue curve. Thus the average revenuc
curve of a monopolist slopes downwards.
D indicating that higher quantity of e.
O commodity can be sold only at a lower p
M M2 X The
corresponding marginal revenue curv
MR uantity can be derived from the average revc
nue

Fig. 1 curve, as shown in Fig. 1.

 noy: Price Determination, Discrimination and Monopoly Control 157

IEis the demand curve. It is also the AR curve of the firm. Every point
1 Ed is the de
Infigure
Dnd curve
cu is the price and price per unit is also the average revenue. As the
demand
the
demand
on curve is ping downward, the corresponding MR curve is also sloping
hulf at a faster rate; and the MR curve will be at a lower level while the AR
downlbe at a higher level. Since we have taken a linear demand curve, the MR curve
d o w n w a r d

cur h e linear and its slopes will be double that of the demand curve.
One of the important implications for the monopoly firm facing a downward
n o demand curve is that the jirm can fix the output of the price, but not both.
slopisthe monopoly firm fixes the price OP (See Fig. 1), then the quantity that can
he sold, is OM. Similarly, if the firm xes the quantity to be produced and sold is OM2.
h e nrice will be determined by the demand curve, the price will be OP1.
THE COST CURVES OF A MONOPOLY FIRM
The cost curves of a monopoly firm do not differ materially from those of a
competitive firm. The cost behaviour depends upon the production function, and is,
normally, influenced by the law of variable proportions. The resultant average cost and
marginal cost curve are U-shaped curves, as shown in Fig. 2.
Short-run Cost Curve Cost Curve
YLongPeriod
MC AC
AVC
LMC
LAC

---

AFC
X
Quantity Quantity
Fig. 2 (b)
Fig. 2 (a)
In Fig. 2 (a), we have short-period cost curves : AC and MC. In the short period
that AFC does not play any role
AC will consist of AFC and AVC. We have seen earlier
in the determination of
price in the short period. in long period. the long
the In
Fig. (6) illustrates cost curve of the monopoly firm
2
In the long period, the
n
firm will have AC and MC of production.
monopoly The i m has
between fixed and variable cost does not hold good.
Sunction cost
1ong-period average cost and marginal cost.
or MONOPQLY : PRICE AND