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Losses From Monopoly - Theory & Prctices

Monopolies can potentially cause losses in three main ways: 1. By charging very high prices, monopolies risk losing customers to substitutes or new entrants, as happened when Indian Railways lost business to oil pipelines by excessively raising freight rates. 2. As the sole provider of a service, monopolies like Indian Railways must balance profits with affordable access, but overly high prices can undermine this and lead to financial losses. 3. By restricting output to maintain high prices, monopolies can end up with unsold capacity and waste resources, as seen when Indian Railways had millions of passengers unable to get reserved seats despite paying waiting list charges.

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Rishita Malani
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256 views21 pages

Losses From Monopoly - Theory & Prctices

Monopolies can potentially cause losses in three main ways: 1. By charging very high prices, monopolies risk losing customers to substitutes or new entrants, as happened when Indian Railways lost business to oil pipelines by excessively raising freight rates. 2. As the sole provider of a service, monopolies like Indian Railways must balance profits with affordable access, but overly high prices can undermine this and lead to financial losses. 3. By restricting output to maintain high prices, monopolies can end up with unsold capacity and waste resources, as seen when Indian Railways had millions of passengers unable to get reserved seats despite paying waiting list charges.

Uploaded by

Rishita Malani
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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LOSSES FROM

MONOPOLY-
THEORY &
PRCTICES
END SEMESTER
EXAMINATION
(REGULAR)

PRESENTED BY:
SUBMITTED TO:
NAME ROLL NO JLU ID
RISHITA MALANI 2020BBA146 JLU05749
DR. IFTEKHAR
PARIDHI DWIVEDI 2020BBA121 JLU05631
KHAN PARTH CHATURVEDI 2020BBA164 JLU05901
YASH KUKREJA 2020BBA107 JLU05558
TOTAL NO. OF SLIDES: MOHAMMAD AHAD 2020BBA110 JLU05560
KHAN
18
• MONOPOLY

• CHARECTERISTICS OF MONOPOLY

CONTEN • PROS & CONS

• EFFECTS OF MONOPOLY

TS • DEMAND CURVE

• POSSIBILITIES OF LOSSES

• EXAMPLES
MONOPOLY
Monopoly exist when of firm produces and sells a good or
service for which there are no close substitutes and other forms
are prevented by some type of entry barriers from entering the
market.

A Monopoly, consequently, has More market power than any


other type of firm. Although there are few true Monopolies is in
real-world market and the most of these are subject to some form
of Government regulations.
EXAMPLES
Examples of Pure Monopoly are relatively rare but there are excellent examples of less pure forms.
 Intel provides 80% of the central microprocessors used in personal computers.
 The De Bears Diamond Syndicate effectively control 55% of the world supply of rough cut
diamonds.
 A small town may be served by only one airline or railroad.
 In a small, extremely isolated community, the local barber shop, drycleaners or a grocery
store may approximate a monopoly.
CHARECTER
ISTICS OF
MONOPOLY
MARKET
MONOPOLY

ADVANTAGES DISADVANTAGES
EFFECTS OF MONOPOLY
• Less choice
Clearly, consumers have less choice if supply is controlled by a monopolist – for
example, the Post Office used to be monopoly supplier of letter collection and
delivery services across the UK and consumers had no alternative letter collection
and delivery service.
• High prices
Monopolies can exploit their position and charge high prices, because consumers
have no alternative. This is especially problematic if the product is a basic necessity,
like water.
• Restricted output

Monopolists can also restrict output onto the market to exploit its dominant position over a
period of time, or to drive up price.

• Less consumer surplus

A rise in price or lower output would lead to a loss of consumer surplus. Consumer surplus is the
extra net private benefit derived by consumers when the price they pay is less than what they
would be prepared to pay. Over time monopolist can gain power over the consumer, which
results in an erosion of consumer sovereignty.

• Productive inefficiency

Monopolies may be productively inefficient because there are no direct competitors a monopolist
has no incentive to reduce average costs to a minimum, with the result that they are likely to be
productively inefficient.
DEMAND CURVE OF A
MONOPOLY FIRM
• In order to increase the
output to be sold,
monopolist will have to
reduce the price.
Therefore, a monopolistic
firm faces a downward
sloping demand curve.

• As a result, Revenue
generated from every
additional unit(MR) is
less than the price (AR) of
the product. Due to this
A Loss Making Monopolist

• A monopolist can be a loss-making one if the Average Cost


lies above Average Revenue.
• In this case, the firm’s costs are greater than its revenue so it
makes a loss.
A Loss Making A Profit Maximizing
Monopolist Monopolist
EXAMPLES
PHARMACEUTICAL
SECTOR
• In the pharmaceutical sector, two types of medicines are produced- Generic and Molecule.
• Generic medicines can be made by anyone without any patent rights.
• Whereas, Molecule medicines are those specific medicine made by a company through their research and
development. It gives you a monopoly over pricing as it is produced by you only while barring others from
entering into the market.
MICROSOFT
MONOPOLY IN MICROSOFT
Few characteristics of Monopoly are:
• Single Seller
• Price Maker
• No close Substitution
• High barrier to entry
• Unique Product
MICROSOFT
• One of the few examples of a Monopoly without government license is Microsoft Windows, which
has succeeded in maintaining its Monopoly through large investments in research and
development, rapid innovation, network economies, and tough tactics against its competitors.
• Once a spreadsheet program like Excel or a word processing program like Microsoft Word has
achieved wide acceptability, potential competitors find it difficult to make inroads into the market.
Users, having learnt one program erected to switch to another. Consequently, in order to get people
to try a new program, any potential entrant will need to run a big promotional campaign, which
would be expensive and may still result in failure to produce a profitable product.
• The Linux operating system can substitute for Windows, and so on. But such substitutes are
typically in some way less appealing.
INDIAN RAILWAYS
Monopoly in India Railways
Some characteristics of Monopoly are
• Single seller many buyers
• No Substitution
• Price Maker
• Price Discrimination
• Closed Entry
INDIAN RAILWAYS
• Indian Railways (IR) is the state-owned railway company of India. It  is a publicly owned company
controlled by the Government of India, via the Ministry of Railways.
• The very high costs of laying track and building a network, as well as the costs of buying or leasing the trains,
would prohibit, or deter, the entry of a competitor.
• Indian Railways is a Monopoly, since there is no other agency in the country that provides railway service.
Considering Railways as a mode of transport, Roadways and Airways can be counted as it substitutes, but not
close substitutes. So, railways serves as a very good example of monopoly.
•  This can be seen in the way that it operates as a ‘price setter’. That is, it can determine the prices that are
charged in the market, because there are no rivals to undercut its price or make it charge a higher price. 
• Since there is no competitor, the railway has been dictating its own terms, thereby losing business.
LOSSES
• All the refineries initially came to the Railways for transportation of petrol, diesel etc. to the destination. The
railways hiked the freight rates abnormally high and the overall scenario became costlier than the pipe lines.
The oil companies became sick of the entire arrangement and decided to go in for the pipe lines. The railways
did not wake up, and as a result, lost the entire business to the pipe lines.
• As we all know Railway is a mixture of opposites it supposed to be financially profitable but at the same
time keep common people on mind it just cannot higher its prices, arising a situation where bus fare is 6 to 7
times more then railway fare , both travelling in the same destination(distance) an hence causes Railways a
huge loss.
• In the year 2018-19 , 8.85 crore passengers were in waiting list to which only 16% reservation out of these
waiting list were provide by the INDIAN RAILWAYS, which lead to the wastage of time and money for the
time being and left the other 84% with the news of getting their tickets cancelled.
THANK YOU

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