Rajasthan Board RBSE Class 12 Economics Notes Chapter 12 Other Forms of Markets
Monopoly is a market structure in which a single firm is the sole producer and seller for a product for which there are no close substitutes.
In a monopolistic market, the firm and industry are the same.
The monopolists demand curve (AR curve) has a negative slope which means that a monopolist can sell more only at a reduced price.
Three conditions are necessary for the monopoly to exist:
- There must be a single firm producing a product.
- There are no close substitutes available in the market for the product produced by that single firm.
- There are strong barriers to the entry of new firms in the industry.
Demand curve for the monopolist slopes downward. If he produces and sells more, price falls and vice-versa. Marginal revenue curve of the monopolist therefore lies below the demand or average revenue curve.
There can be many reasons for monopolistic condtions to exist, i.e. absolute control over raw materials, grant of patent rights by government, cost efficiency, etc.
Monopolistic competition is another market condition, in which number of firms is more, substitution goods are present, product differentiation is possible, no restriction exists on entry or exit of firms in the market.
Groups of many firms are present in the market in monopolistic competition.
Variations in sales costs can be seen in this condition.
Sellers use other methods than changing price, i.e. gift scheme, free service, etc., to attract customers.
The demand curve in this market is more elastic than in a monopoly.
Oligopoly is that state of the market, where number of sellers is less and they sell homogeneous and differentiated products. If there are two sellers in market, then it is called duopoly.
Mutual dependence exists among firms in oligopoly.
Competition is seen among firms. Advertising plays a very important role, and firms try to increase sales by cutting prices.
State of conflict and opposition exists between firms.
Due to excessive mutual dependence between firms in oligopoly, the demand curve remains uncertain.
Monopolistic competition is a market structure in which a large number of firms produce and sell products which are differentiated but close substitutes of each other. In such a market, a firm exercises some control over the price of commodity.
When the products produced by different firms are not identical but are slightly different from each other so that they are close substitutes of each other, there is product differentiation in the industry.
Under monopolistic competition, demand curve slopes downward as a firm exercises some control over price of its product which is somewhat differentiated from the products of its rivals. Since the demand curve which is also the average revenue (AR) curve of the firm slopes- downward, marginal revenue (MR) curve lies below it.
Monopolistic competition refers to competition among a large number of firms selling similar but differentiated products which implies that these products are close but not perfect substitutes.
Since the products of rival firms are not homogeneous, they are regarded as a ‘group’ instead of an industry.
On the basis of Chamberlin’s heroic assumptions, the long-run equilibrium is obtained when each firm in the product group receives only normal profits.
Product variation refers to an alternation in the quantity of the product, technical change, a new design, or better materials, it may mean a new package of container, etc.
The firm is in equilibrium when it has been able to exercise its choice in favour of that product variety which maximizes its profits.
The waste of economic resources result from the firms producing output at which long- run average cost is still more than the minimum average cost. That is, in each firm there exists excess capacity so that resources are not fully and efficiently utilized.
When the self-interest of a monopolist assumes alarming production due to which the interest of the public is adversely affected, it
becomes necessary for the government to restrain monopoly power. From time to time, the governments have adopted several measures to curb the abuses of monopolists.
Important Definitions
- “Monopoly is that state of market in which a product has only one producer, and he has absolute control over his product, which has no substitute.” – Stanier and Hague
- “Monopolist is that seller whose product has a decliining demand curve.” – Prof. Lemer
- “A monopolist is one who generally has absolute control over the supply of a product, and in most cases, he operates the price and not the supply.” – Prof. Chamberlain
- “Oligopoly is that state of market in which the number of sellers is so less that each seller influences the market price and each seller knows this.” – Meyers
- “Those market conditions are called oligopoly, in which sellers are few in number and so many, that their activities are important for one another.” – Leftwich
- Duopoly is the market condition in which there are two producers of the same, or almost same product, who are not bound to accept any agreement regarding price and production quantity between them.” – Dr. John
Important Glossary
- Monopoly – Special rights or control of supply or trade in any item or service.
- Monopolistic Competition – Monopolistic competition is a market structure that combines elements of monopoly and competitive markets.
- Oligopoly – A state of limited competition, in which a market is shared by a small number of producers or sellers.
- Price discrimination – To maximize sales and profits, the action to sell the same product to different buyers at different prices.
- Duopoly – It is a situation where two suppliers dominate the market for an item or service.
- Product Differentiation – Product differentiation implies making changes in the product on the basis of shape, size, packing, etc.
- Cross-elasticity – The measure of change in demand of another product upon change in price of one product is called cross-elasticity. This happens with alternative and substitute products.
- Patent – The singular use of an invention through a legal right, is called patent.
- Trademark – Trademark implies a trade symbol, i.e. Amul, Dalda etc.