Business Paper 3

Introduction

A monopoly is a situation where one firm completely dominates the market. This is exactly the opposite of perfect competition (explained later), and it means that one firm has 100% market share. There can be several circumstances that result in a monopoly. If only one firm selling a unique product that they have various patents or copyright on, then the company has a monopoly on the market. A monopoly also results when no substitute product is being sold, leaving the consumer able to purchase only the monopolized product. This means that the market has extremely high barriers to the entry of another firm. Monopolies are commonly referred to as 'price setters, which means that because of their position in the market, they can set virtually any price for a good or service, and still have high demand for it, simply because no-one else is selling it. In USA today, however, there are very few monopolies, but they still exist. This paper discusses how Is the USA a Monopoly.

Discussion

An oligopoly is a prime example of imperfect competition. They are the most common type of market structure in United States of America, and they involve a few (relatively) large firms with a (relatively) large market share. The firms involved sell similar products, and the barriers to entry into the market are quite high (this explains why there are only a small number of firms).

Advertising is a key part of an oligopoly (Martín, pp.89-95). A successful advertising campaign gets the public eye, and attracts consumers to the firm in question over those who do not advertise (at least as successfully). The key advantage of an oligopoly is that the firms involved have high price setting abilities. The most common examples of an oligopoly are in the mass media market, which includes television, radio, and newspaper publishers(Hibdon, pp.40-46).

There is no question that a monopoly can set prices in order to maximize profits, as well as impose costs upon society by such price setting. As it discussed earlier, it is the most common type of market structure in United States of America.

In the United States of America, the members of an oligopoly change the nature of a free market. While they can't dictate price and availability like a monopoly can, they often turn into friendly competitors, since it is in all the members' interest to maintain a stable market and profitable prices.

With four or five large firms responsible for most of the output of each industry, avoidance of price competition became almost automatic. If one firm were to lower its prices, it is likely that its competitors will do the same and all will suffer lower profits (Hirshleifer, pp.12-20). On the other hand, it is dangerous for any single firm to increase its prices since the others might hold their prices in order to gain market share. The safest thing is to never lower prices and only raise prices when there is abundant evidence that the other firms will also raise ...