Using Real World examples, illustrate both some of the potential :: Economics

Using Real World examples, illustrate both some of the potential benefits of monopolies and explain how monopoly firms may be able to engage in price discrimination practices. A monopolistic market or company is one where there is non existent competition. There is one leading market domineer that is producing and supplying the entire market. In a monopolistic market the company in question can determine prices or the amount of products sold to work in their advantage. The power of a monopoly company is that it can completely dominate a particular market subject to whether or not there are existing or up and coming substitutes. By this what is meant is that there could well be a substitute for the monopolist’s product. An example of this would be old public sector companies like British Rail. They controlled the entire rail travel market; however there were always alternative forms of travel like coach or air travel. This proves that there is no real possibility of a pure monopoly as there are always alternatives. There is another variant that decides to classification of a monopoly. This is the barriers of entry into that particular industry or sector of the market. If there are low barriers of entry, this will stimulate competition between firms competing for consumers of that market sector, however if the barriers are of high entry, then it is easy to say that the company dominating the market is that of a monopolistic nature. This echoes the fact that a monopolistic firm can indeed decide on price or quantity sold to influence demand. They can only influence demand to a certain extent because of other alternatives to their own product e.g. travel and different forms of transport. By doing this, a monopolist company can make non-standard profits in the long term future. A major advantage of a monopolistic firm is that it can use price discrimination as a tool in gaining more money. This is where a firm can make the consumer pay for a different price for the exact same service. A good example of this is through British telecom and how it is cheaper to ring during off peak tariffs rather that during the day when the cost of a phone call is substantially higher than that of a phone call during the evening. However, for price discrimination to happen there must be a number of factors occurring to make price discrimination work for the company. First, the company must know its customers and know that they have different demands to that of other people. This may be the travel of commuters into the city for work.