Monopoly

10 October 2016

In our life, electricity is very importance and this is one of necessary things we use in everyday. In Vietnam, there is big corporation supply electricity for whole country which is EVN and the market of electricity in Vietnam is the monopoly. First of all, while perfect competitive market has many buyer and seller, monopoly is the market which has only one firm supplying the whole market. As the results, monopoly creates the unique product which dose not has close substitutes.

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Of course, in monopoly, there are no firms offering essentially identical same as perfect competitive market so has no close competition and, therefore, has the power to influence the market price of its product. Moreover, there are strong barriers to entry in this market. A monopoly remains the only seller in its market because other firm cannot enter the market and compete with it. Why monopoly can arise? We should consider three sources of barriers. First, the simplest way for a monopoly to arise is for a single firm to own the key resource. EVN, for example, it own the key input to produce electricity such as coal and water.

Second, in many cases, monopoly arises because the Government has given one person or firm the exclusive right to sell some good or service. The patent and copyright laws are two importance examples. When you use your computer, it probably uses some version of Windows, the operating system sold by the Microsoft Corporation. Microsoft applied and received a copy right from the Government. Surely, nobody can sell and copy this except Microsoft and if one person wants to buy a copy of Windows, they have to pay higher price for this product. And the last is production process.

When the firm has the copyright, it can raise the out put of the product and as the result price will be decrease. By the law of supply and demand, the costumers will be attracted away from the other firms. Of course, other firms will loss profit and be kicked out of the market. The firm has the copyright will be come monopoly. In addition, while perfect competitive firms have to take the given price and become price taker, monopolist firm has the market power to set the price of its product and become price maker. For instance, consider the market for electricity. If in Vietnam there are many of firm upply electricity, the prices of it will be lower but in fact, there is only one EVN supply electricity for whole country so even if it charge the high price people have to accept because it is impossible to get electricity from anywhere else. Not surprising, the monopolist has much greater market power than any single firm in a competitive market. In the case of a necessity like electricity, the monopolist could command quite a high price. Overall, all of characteristics such as there is only one producer, unique product, strong barriers to entry, price maker together they create one kind of market which is perfect competitive market.

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