Bilateral monopoly

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A bilateral monopoly is a market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer). [1]

Monopoly market structure with a single firm dominating the market

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. In the microeconomic theory of monopsony, a single entity is assumed to have market power over sellers as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.

Contents

Overview

Bilateral monopoly situations are typically analyzed using the theory of Nash bargaining games, and market price and output will be determined by forces like bargaining power of both buyer and seller, with a final price settling in between the two sides' points of maximum profit. [2] A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high.

The two-person bargaining problem studies how two agents share a surplus that they can jointly generate. It is in essence a payoff selection problem. In many cases, the surplus created by the two players can be shared in many ways, forcing the players to negotiate which division of payoffs to choose. There are two typical approaches to the bargaining problem. The normative approach studies how the surplus should be shared. It formulates appealing axioms that the solution to a bargaining problem should satisfy. The positive approach answers the question how the surplus will be shared. Under the positive approach, the bargaining procedure is modeled in detail as a non-cooperative game.

Switching barriers or switching costs are terms used in microeconomics, strategic management, and marketing to describe any impediment to a customer's changing of suppliers.

Examples

United States Navy Naval warfare branch of the United States Armed Forces

The United States Navy (USN) is the naval warfare service branch of the United States Armed Forces and one of the seven uniformed services of the United States. It is the largest and most capable navy in the world and it has been estimated that in terms of tonnage of its active battle fleet alone, it is larger than the next 13 navies combined, which includes 11 U.S. allies or partner nations. with the highest combined battle fleet tonnage and the world's largest aircraft carrier fleet, with eleven in service, and two new carriers under construction. With 319,421 personnel on active duty and 99,616 in the Ready Reserve, the Navy is the third largest of the service branches. It has 282 deployable combat vessels and more than 3,700 operational aircraft as of March 2018, making it the second largest and second most powerful air force in the world.

Huntington Ingalls Industries American shipbuilding company

Huntington Ingalls Industries (HII) is an American Fortune 500 shipbuilding company formed on March 31, 2011 as a spin-off of Northrop Grumman. It is the largest military shipbuilder in the United States, with its main shipyard located in Newport News.

United States Department of Defense United States federal executive department

The Department of Defense is an executive branch department of the federal government charged with coordinating and supervising all agencies and functions of the government concerned directly with national security and the United States Armed Forces. The department is the largest employer in the world, with nearly 1.3 million active duty servicemen and women as of 2016. Adding to its employees are over 826,000 National Guardsmen and Reservists from the four services, and over 732,000 civilians bringing the total to over 2.8 million employees. Headquartered at the Pentagon in Arlington, Virginia, just outside Washington, D.C., the DoD's stated mission is to provide "the military forces needed to deter war and ensure our nation's security".

See also

In economics, industrial organization or industrial economy is a field that builds on the theory of the firm by examining the structure of firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior as between competition and monopoly, including from government actions.

New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics. It can be seen as a broadening step to include aspects excluded in neoclassical economics. It rediscovers aspects of classical political economy.

In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market.

Related Research Articles

Microeconomics is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

Monopolistic competition Imperfect competition of differentiated products that are not perfect substitutes

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. In the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933). Joan Robinson published a book The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition.

In economics, specifically general equilibrium theory, a perfect market is defined by several idealizing conditions, collectively called perfect competition. In theoretical models where conditions of perfect competition hold, it has been theoretically demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum.

In economic theory, imperfect competition is a type of market structure showing some but not all features of competitive markets.

An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of buyers. It contrasts with an oligopoly, where there are many buyers but few sellers. An oligopsony is a form of imperfect competition.

Price quantity of payment or compensation given by one party to another in return for goods or services

A price is the quantity of payment or compensation given by one party to another in return for one unit of goods or services.. A price is influenced by both production costs and demand for the product. A price may be determined by a monopolist or may be imposed on the firm by market conditions.

In economics and business ethics, a coercive monopoly is a firm that is able to raise prices, and make production decisions, without risk of competition arising to draw away their customers. A coercive monopoly is not merely a sole supplier of a particular kind of good or service, but it is a monopoly where there is no opportunity to compete with it through means such as price competition, technological or product innovation, or marketing; entry into the field is closed. As a coercive monopoly is securely shielded from possibility of competition, it is able to make pricing and production decisions with the assurance that no competition will arise. It is a case of a non-contestable market. A coercive monopoly has very few incentives to keep prices low and may deliberately price gouge consumers by curtailing production. Also, according to economist Murray Rothbard, "a coercive monopolist will tend to perform his service badly and inefficiently."

In economics a monopoly is a firm that lacks any viable competition, and is the sole producer of the industry's product. In a normal competitive situation, no firm can charge a price that is significantly higher than the Marginal (Economic) cost of producing the product. If any firm doing business within a competitive situation tries to raise prices significantly higher than the Marginal cost of producing the product, it will lose all of its customers to either other existing firms that charge lower prices, or to a new firm that will find it profitable to use a lower price to take customers away from the firm charging the higher price. But since the monopoly firm does not have to worry about losing customers to competitors, it can set a Monopoly price that is significantly higher than its marginal cost, allowing it to have an economic profit that is significantly higher than the normal profit that is typically found in a perfectly competitive industry. The high economic profit obtained by a monopoly firm is referred to as monopoly profit.

In economics and particularly in industrial organization, market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost. In perfectly competitive markets, market participants have no market power. A firm with total market power can raise prices without losing any customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers" or "price setters", while those without are sometimes called "price takers". Significant market power occurs when prices exceed marginal cost and long run average cost, so the firm makes economic profit.

Market (economics) mechanisms whereby supply and demand confront each other and deals are made, involving places, processes and institutions in which exchanges occurs (for physical venues, use Q132510 or Q330284)

A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and resource allocation in a society. Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale.

Competition (economics) concept in economics

In economics, competition is a condition where different economic firms seek to obtain a share of a limited good by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater selection typically causes lower prices for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly).

Edward Chamberlin American economist

Edward Hastings Chamberlin was an American economist. He was born in La Conner, Washington, and died in Cambridge, Massachusetts.

In Chamberlinian monopolistic competition every one of the firms have some monopoly power, but entry drives monopoly profits to zero. The concept gets its name from Edward Chamberlin.

In economics, profit in the accounting sense of the excess of revenue over cost is the sum of two components: normal profit and economic profit. Normal profit is the profit that is necessary to just cover the opportunity costs of the owner-manager or of the firm's investors. In the absence of this profit, these parties would withdraw their time and funds from the firm and use them to better advantage elsewhere. In contrast, economic profit, sometimes called excess profit, is profit in excess of what is required to cover the opportunity costs.

The following outline is provided as an overview of and topical guide to economics:

In economics, an excess supply or economic surplus is a situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand. That is, the quantity of the product that producers wish to sell exceeds the quantity that potential buyers are willing to buy at the prevailing price. It is the opposite of an economic shortage.

References

  1. Mark Hirschey, Fundamentals of Managerial Economics, Cengage Learning, 2008, pp. 474
  2. "DEFINITION of 'Bilateral Monopoly'". Investopedia . investopedia.com. Retrieved 28 January 2016.