Monopolistic Competitive Firms



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Monopolistic Competitive Firms

Introduction

It is important to understand the main concept of monopoly; the term monopoly refers to a company which deals with the provision of goods and services that do not have close replacements available in the market and also to a company that creates significant barriers for new entrants in the market. Through the consolidation of two oligopoly members present in the Northwest US potato chip industry, a monopoly was created by the two legal professionals (Ishida et.al, 2011). By eliminating competition in the region, it is quite certain to say that Wonks would be able to control and manage their position in the market and on the market demand curve. They will be able to control pricing, production quantity, supply chain and the target market.

It is quite certain to say that a packaged and eatable product like potato chips cannot hold market domination for a long span of time, as other producers and businesses will supply their products in this region and further take keen steps for example paying slotting allowances in order to place their products on the supermarket shelves. It can still be examined for this exercise that what is most likely to happen to the market until this type of competition makes its way to the Ralph's and Safeway's of the Northwest.

Discussion

Ways in Which Wonks Will Influence the Government, Businesses and Consumers

There will be numerous benefits that will be enjoyed by various stakeholders for example consumers, government and other businesses but on the contrary there will be certain disadvantages as well (Kamerschen & Park, 1994). Government will be able to enjoy greater tax revenues which will aid the government to make necessary expenditures for the country and its citizens. Many factors will lead to an increase in the tax revenues for example due to the increase in prices of the chips there will be an increase in the indirect tax revenue. Moreover high prices would mean higher income for Wonks which will also result in an increase in the direct tax revenue for the government. On the other hand government intervention might also be required if or when the market forces (including other potato chips consumers or producers) lead to unfair trade practices.

Other businesses and cooperating enterprises for example resellers such as convenience stores and supermarkets etc. are most likely to see this as an ability to supply Wonks products at increased prices to consumers, as they will be motivated by the increased prices charged to them for the chips by Wonks. As the case makes it evident that Wonks are the only chips available in the town so the stores will agree to high prices in the initial stages in order to enjoy high profit margin as there will be no competition or substitute. This will enable the cooperating enterprises to quote high prices and generate greater revenues. Apart from this, if Wonks is unable to satisfy consumer needs and is unable to meet consumer's ...