Friday, July 1, 2016

153. Monopolies

Example of how monopolies come into existenxce: The theory says: "The fixed cost of constructing a competing transmission network is so high, and the marginal cost of transmission for the incumbent so low, that it effectively bars potential competitors from the monopolist's market, acting as an early insurmountable barrier to entry into the market place." In reality however one will usually find that there are legislative barriers in place that prevents smaller independent power producers to generate and distribute power in competition to the monopolist. Why is this necessary if the first paragraph were true? ======================================================================= Monopolies (types: Natural Monopoly = When the average cost of production is still declining at levels of output that are greater than the demand.

WIKIPEDIA: “In small countries like New Zealand, electricity transmission is a natural monopoly. Due to large fixed costs and a small market size, one seller can serve the entire market at the downward-sloping section of its average cost curve.”

If this was true – why do they have laws in place preventing newcomers to enter the market?

Reasons for monopolies:

Economies of scale, limited scale of the market, exclusive ownership of raw materials.

Also we have market agreements (SABC, MTN – sports broadcasts), predatory pricing strategies

Then we have government intervention in the markets – patents, licensing, import restrictions

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