RHODES HIGH SCHOOL

ECONOMICIS RESEARCH ASSIGNMENT

monopoly

GRADE 12 LEARNER
Avuyile Mokoena

INTRODUCTION
 MONOPOLIES

A monopoly is a market structure where a single

company or entity has exclusive control over the supply
of a particular product or service, giving them the
power to set prices and limit competition. It is like
having a complete monopoly over a specific industry or
market segment.
Example, the company Microsoft, in the 1990s,
Microsoft dominated the computer operating system
market with its windows operating system. It had a
significant market share and faced little competition,
this allowed Microsoft to set high prices and control the
industry, however monopolies may have a positive and
negative impact on the economy.
Monopolies can originate from various factors such as
government regulations, natural resources,
technological advancements, or even through business
strategies. It is interesting to see how different
circumstances can lead the establishment of a
monopoly.
There are a few concepts related to monopolies, one
being the market power, where a monopoly has the
ability to control prices and output. Another concept is
barriers to entry, which are obstacles that prevent
other firms from entering the market and competing.
Lastly, there’s consumer welfare, which refers to the
impact a monopoly can have on consumers in terms of
prices, choices and quality of products or services.
These concepts help us understand the dynamics of
monopolies in different industries.
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BODY

CHARACTERISTICS

Monopolies have a few key characteristics, firstly they

are sole providers of a particular product or service in
the market, meaning they have no direct competition.
This gives them significant control over pricing and
supply. Secondly, monopolies often have high barriers
to entry, making it difficult for new companies to enter
the market and compete. Thirdly, monopolies can enjoy
economies of scale, which means they can produce
goods or services at lower costs due to their size and
efficiency. However, monopolies can sometimes lead to
higher prices, reduced consumer choice, and less
innovation compared to competitive markets. In
addition to being the sole provider in the market and
having control over pricing, monopolies often have the
ability to restrict output to maximize profits. Since they
face little or no competition, they don’t have the same
pressure to innovate or improve their products or
services. Monopolies can also engage in anti-
competitive practices, such as predatory pricing o
exclusive contracts, to maintain their dominance and
prevent new entrants.
BARRIERS TO ENTRY

Monopolies create barriers to entry in a few different

ways. One being by control of essential resources or
intellectual property rights. For example, if a company
owns exclusive access to a rare raw material or holds
patents for a crucial technology, it can prevent
potential competitors from entering the market. This
gives the monopoly a significant advantage and makes
it challenging for new players to compete.
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Another way monopolies form barriers to entry are

through economies of scale. As a monopoly grows and
produces more goods and services, it can benefit from
lower average costs. This makes it difficult for new
entrants to match the monopoly’ prices and compete
effectively. The monopoly’s established infrastructure,
distribution networks and brand recognition also give it
a competitive edge.
Monopolies can also engage in aggressive pricing
strategies, for instance they may engage in predatory
pricing, where they temporarily lower prices to drive
competitors out of the market. Once the competition is
eliminated, the monopoly can raise prices again, which
can deter new entrants from entering the market due
to the risk of being undercut.
Additionally, monopolies may have significant potential
influence or lobbing power, which can result in
favourable regulations or policies that further protect
their market dominance. These factors, combined with
the lack of competition, can create formidable barriers
to entry for potential competitors. It is important to
note that these barriers to entry can have negative
effects on competition, innovation, and consumer
choice. That’s why it’s crucial for governments to
regulate monopolies to ensure fair and competitive

This Photo by Unknown Author is licensed under CC BY

markets.

Page 3

Market failures

Monopolies can contribute to market failures in many

ways. Distortion of prices, since monopolies have
control over the supply of a particular product or
service, they can manipulate prices to maximize their
profits. This can lead to higher prices for consumers,
reducing their purchasing power and limiting their
choices.
Another way monopolies can contribute to market
failures is by reducing innovation and stifling
competition.
Without competition, monopolies have less incentives
to invest in research and development or to improve
their products and services. This lack of innovation can
lead to a stagnant market with limited advancement
and fewer options for consumers.
Furthermore, monopolies can have negative effects on
small businesses and entrepreneurship. With high
barriers to entry, it becomes difficult for new companies
to compete and enter the market. This can stifle
innovation, limit job opportunities, and hinder economic
growth.
Overall, monopolies can contribute to market failures
by distorting prices, reducing innovation, misallocating
resources, and impeding competition. That is why it’s
important for governments to regulate monopolies and
promote fair and competitive markets to protect
consumers and foster economic growth.
Advantage and disadvantage.

Monopolies can have both adv and disadvantages for

consumers, businesses and the economy as a whole,
here is a list an advantages in each sector.

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Advantages:
For Consumers, monopolies can sometimes achieve
economies of scale, leading to lower production costs.
This can potentially result in lower prices for
consumers.
For Businesses, A monopoly position can provide
stability and long-term profitability for the company,
allowing for investment in research, development and
innovation, monopolies may have the ability to
negotiate better deals with suppliers, leading to cost
savings.
For the Economy, Monopolies can contribute to
economic growth by investing in infrastructure,
research, and development, they may have the
resources to expand and create job opportunities.

Disadvantage:
For Consumers, monopolies can exploit their market
power by charging higher prices, resulting in reduced
consumer choice and potentially limiting affordability,
lack of competition may lead to the decrease in
incentives for the monopoly to improve products or
provide better customer service.
For Businesses, monopolies can discourage
entrepreneurship and limit opportunities for new
businesses to enter the market. Lack of competition
can lead to complacency and reduced incentives for the
monopoly to innovate or improve its products and
services.
For the Economy, monopolies can lead to a
concentration of wealth and power, potentially leading
to income inequality. Lack of competition can hinder
innovation and limit overall economic efficiency.
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It is important to strike a balance between promoting

competition and allowing for innovation while also
protecting consumers’ interests.
To address the disadvantage of monopolies, there are
some potential solutions that can be considered: price
regulation, implementing price controls can prevent
monopolies from exploiting their market power and
charging excessively high prices. This can help protect
consumers and ensure affordability. Promoting
competition, encouraging and supporting the entry of
new competitors in the market can help mitigate the
negative effects of monopolies etc... the appropriate
solution may vary depending on the specific context
and industry.
Privatisation of state-owned enterprises
Privatisation of a state-owned enterprises, including
monopolies, can have both positive and negative
impacts on a country. On the positive side, privatisation
can lead to increased efficient and productivity. When
state-owned enterprises are privatised, they come
more competitive and profit driven, which can dive
innovation and improve overall performance. However
privatisation can promote competition by breaking up
monopolies and introducing multiple players in the
market, it may lead to lower prices, improved quality of
goods and services and increase consumer choice but
privatisation may cause job loss and reduce access to
essential services, especially if the new private owners
prioritize profit over public welfare another concern is
the potential for monopolistic behaviour by private
entities. While privatisation aims to introduce
competition, it is crucial to prevent the emergence of
new market power and harm consumer. effective
regulation and oversight are essential to maintain a
level playing field and prevent anti competition
practices. Ultimately whether privatisation of state-
owned
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enterprises is good or bad for a country depends on

various factors, including the specific industry and level
of competition.
The role of Compensation act

The compensation act is designed to promote

competition and prevent anti-competitive behaviour in
the marketplace. It aims to protect consumers,
encourage economic efficiency, and foster innovation.
Under the act, the compensation commission law and
investigating anti competition practices. They have
power to investigate mergers, acquisitions and
agreement that may harm competition. They also have
authority to impose penalties on companies found
guilty of anti-competitive behaviour.by enforcing the
act South Africa aims to create a level playing field for
businesses, encourage fair competition and prevent the
concentration of economic power in the hands of few.
Overall, the competition act plays a vital role in south
Africa’s efforts to reduce the formation of monopolies
and ensure a competitive marketplace that benefits
both business and consumers.
Conclusion

After examining the findings on monopolies, it is

evident that they can have detrimental effects on
competition, consumer choice and market efficiency. To
address this issue, it is recommended to continue
enforcing and strengthening competition laws, such as
the competition act in South Africa. This includes
actively monitoring mergers and acquisitions,
investigating anti-competitive practices and imposing
penalties when necessary. Additionally promoting
market entry and fostering competitive environment
though policies that encourage innovation and
entrepreneurship can help prevent formation of
monopolies. By doing so we can ensure fair
competition, protect consumers, and promote a vibrant
and dynamic marketplace.

Contents page

Introduction
page 1
Concepts
Origin

Characteristics
page 2

Barriers to entry
page 2-3

Market failures
page 4

Advantages and disadvantages

page 4-5

Privatisation of state-owned enterprises

page 6-7

The role of competitive act

page 7

Conclusion
page 7
 REFRENCING

https://educationleaves.com/ a YouTube link

https://www.ecolib.org
grade 12 economics paper 2 core notes and questions

BY-ND

https://www.economicsonline.co.uk/business/monopoly.html/
economics grade 12 text book

THANK YOU.