SOURCES OF MONOPOLY POWER

Presented by Group no :- 1ANUSHA PROHIT JAJUNEHA PAREEK ABHIJEET LOHIT

MONOPOLY

• A market structure in which only one producer or

seller exists for a product that has no close

substitutes.

• Examples:

– Hindustan Aeronautics Limited

– Indian Railway

MONOPOLY POWER

• Monopoly power is the ability to set prices above marginal cost and that the amount by which price exceeds Marginal cost depends inversely on the elasticity of demand facing the firm.

• The less elastic the demand curve , the more monopoly power a firm has.

MEASURING MONOPOLY POWER

• Measuring of monopoly power calculated as excess of price over marginal cost as a fraction of price

L=(P-MC)/P

SOURCES OF MONOPOLY

• Firm’s elasticity of demand is measured by 3 factors

– The elasticity of market demand– Number of firms in the market– The interaction among firms.

THE ELASTICITY OF MARKET DEMAND

• when there is only 1 firm(pure monopoly), its D curve is the market demand curve and its elasticity determines the monopoly power.when there are several firm’s, then the elasticity of market demand sets a lower limit on the on the magnitude of elasticity of each firm.

NUMBER OF THE FIRMS IN THE MARKET

• Monopoly power will decrease with the increase in the number of firms.

THE INTERACTION AMOUNG FIRMS

• Monopoly power is determined by the competition these firm have in between.

• High Competition will lead to high monopoly power.