Introduction
A monopoly is a “type of market that is mainly characterized by a large number of firms and products that are not considered to be perfect substitutes for one another but highly differentiated; this type of market is also characterized by sellers and suppliers who can set prices of goods and services as they may wish” (Hirshleifer et al 238). There is free entry into the market and exit from it. Most importantly, there is over-reliance on non-price actions in differentiating products. Monopolistic (competition) is a common market form. Nearly the existing (retail) operations can be found in this type of market.
There exist many firms in a monopolistic system; this implies that the firms are few about the whole monopolistic market. Their products are highly differentiated and they do not have the power to influence one another in terms of pricing. One or more firms can change prices but the rest cannot react to such changes in prices. This is what differentiates a monopolistic market from an oligopoly market (Hirshleifer et al 238).
In a monopolistic market, the available products may be similar and in most cases can perform the same functions; however, the way they are differentiated will determine the customer’s preference of the products while the companies could produce exclusively unique products and/or services. In the process of differentiating the products, the manufacturers add some features that will make the products unique in the market.
The demand curve of monopolistic products slopes downwards since the customers’ preferences are determined by the features of the products. The long-run equilibrium point of a firm operating in a monopolistic market is determined by finding the point at which demand is tangential to the average total cost curve. Like any other market, and incentives will attract more firms while disincentives will make some firms exit the market (Brakman and Heijdra 145).
Monopolies and Phone Providers
The phone providers are said to enjoy some level of monopoly. In a nutshell, all mobile phone providers offer products that can never be said to be a perfect substitute to the other. They are all able to perform almost similar functions. What makes mobile phones, iPhones and iPods look differentiated is the fact that they have additional physical features added to them. The different features enable them to perform extra tasks.
It is on the grounds of these additional features that the customers make their choices and preferences. The existence of monopolies in the phone industry is because technological innovations take place at a high rate; however, this happens at high costs which the industry players would like to cover within the shortest period possible (Stager 471). Taking, for instance, the Apple Company has been considered to operate on monopolistic grounds due to its high innovation capacity. Its high performance and quality products like iPods, iPhones, and App Store are unique amongst similar products in the market.
Apple products can perform more tasks than most phone products produced by other companies. The fact that Apple can stay ahead of other mobile and phone services providers makes the Company enjoy the freedom of pricing its products as it wishes. Many firms in different nations are already complaining that the way the Apple Company conducts business is detrimental to innovation. Despite this, the operations of the company are still consistent with microeconomic assumptions of the monopolistic market where competitors are not able to control the pricing systems by other competitors.
About two decades ago, the phone services providers manufactured phones that could be put into general use. The customers benefited from this since the phone manufacturers’ service providers and the distributors competed for them. In the recent past phone, providers have been supplying into the markets phones that are only specifically designed for their network. This scenario has given the phone manufacturers the power to dictate the prices of their products as they wish.
The companies can price their products depending on the profit they want to make. As a result of this, the phone services providers have been able to make abnormal profits. In such cases where the phone providers strive to create monopolies, the retail prices are always exorbitantly priced. The phone service providers sometimes get into roaming agreements so that their networks can access one another at an agreed charge or even for free. The fact is, whenever these companies disagree, they restrict one another’s network from accessing theirs or they may decide to increase across the network fee.
The resultant outcome is that the consumer is either left to pay more or unable to access the other networks. In most cases, it is difficult for mobile phone companies to enjoy a pure monopoly. This is because such companies produce similar products. However, the only way they can create a monopoly is through improving the features that make their phone products unique as compared to those from other companies. For instance, the Apple Company has come up with products such as iPods and iPhones which are almost unrivaled in the market. Improvement of the phone features is always done through technological innovations.
One of the distinctive features of a monopoly is that the prices of products remain relatively constant. This is due to the fact the other players in the industry are not able to influence the price changes. This even becomes difficult in the cases where the products on offer do not have a perfect substitute. Looking at the phone industry in both Europe and the American states, the prices of Apple Company products may vary according to regions but relatively remain constant over time (Froeb and McCann 172).
To ensure that they enjoy some level of monopoly, the companies always patent their innovations. This gives them the advantages of monopoly for some time (Stager, 469). This is one of the strategies used by the Apple Company. The company patents every innovation it comes up with. This ensures that no other competitors, under economic statutes, are allowed to offer the same products in the market.
For instance, the Apple Company has been awarded a patent on Software Performance Analysis Using Data Mining; the exclusive patent was published on April 29, 2010. The patents help the company be able to price its new products in a way that will earn abnormal profits within a short time. With the growing black market and software piracy all over the world, most phone companies always overcharge their unique products so that they can recover their investment cost within the shortest time possible and before counterfeit of such products get into the black market.
In the early years of mobile phone introduction in the world market, most companies enjoyed monopolies. The mobile phones were priced discriminatively in a way that the prices of one type of mobile phone varied greatly across the world market. Price discrimination was very distinct between the developed and developing countries. The new mobile phone technologies, in most cases, originated from the Western and other developed nations.
They first hit the markets of the developing nations. The products reached the developing nations at exorbitant prices while at the same time the prices reduced in the markets of developed nations. The developing nations still rely much on technological development from the developed countries. This scenario presents an opportunity for phone companies to create a monopoly in developing nations. This is what is known as a monopoly as a result of geographical isolation.
Sometimes the mobile phone companies produce locked phones which can only accept one SIM card from a particular carrier; they also make certain phones that are not compatible with others. For example, phones come in varieties according to whether they are CDMA, GSM, EDGE, and TDMA. Amongst these types of phones GSM is the one that is used widely all over the world; it is preferred most by AT&T and T-Mobile.
GSM phone is used by an approximated eighty percent of the world’s population. This implies that it enjoys a partial monopoly in the world market since it is used by the majority in the world; the manufacturers of such phones can determine their prices and make targeted amounts of profits. In most cases, such phones come with some unique features that are not found in other similar products. In other situations, several mobile phone companies have produced products that can accept double SIM cards. In such cases, the pricing of the products is based on extra unique features that are added. This may involve integrating, say like, cameras, radios, and even memory cards and other important features into mobile phones so that the phones can perform other tasks than just communication.
Another area in which the mobile phone companies can be seen to enjoy some level of monopoly is where they may decide to produce for a certain socio-economic class of customers. There are certain classes of people who like using very expensive types of phones. Such are the famous and extremely rich people who would like to take some pride in the very expensive commodities. For instance, there is some level of the monopoly enjoyed by the manufacturers of the Goldvish “Le million” phones.
According to the Guinness Books of Records, it is the most expensive type of phone in the world. Such types of phones are not manufactured by most phone companies due to high production costs; this leaves just a handful of companies to manufacture the products and supply them to the whole world market. With their features of high technology, they can enjoy some partial monopoly in the world market.
Monopolistic pricing is seen as exploitative and, in most cases, not favored in the free market economy where competition should be seen as free and fair. Many governments have put some restrictions on monopoly; however, their some cases where the government may support a monopoly. Most competitors, especially European nations and the United States of America have complained about several mobile phone service providers on the grounds of monopolistic practices.
The Apple Company is one of the phone service providers that have always been accused of practicing illegal monopoly yet it has a high rate of innovations. Most of the companies that complain against monopoly in the industry do not have competitive advantages. In fact with the constant change of communication technology, the prices of new phone products are likely to remain high since the innovative companies need to recover back their innovation costs; moreover, they also seek to get returns on their investments.
This situation presents the smaller firms with the challenge of benefiting from such innovations, especially in cases where innovations are patented for certain periods. Sometimes, mobile companies can collaborate to create a monopoly. A good example is a merger between the Orange and the T-Mobile companies may enjoy some level of monopoly since it is to occupy the largest mobile market in the United Kingdom. It will be handling almost 80 percent of all United Kingdoms’ wireless connections (Zawya para1-10).
Conclusion
A monopoly is a situation (economic) in which only one corporation provides to the market irreplaceable services and/or goods. A monopoly is characterized by free entry into the market and exit. The monopolistic firms can price their products as they wish and this cannot be easily influenced by competitors. In a monopolistic market, firms can make abnormal profits (Hirshleifer et al, 238). There are numerous firms in a monopolistic market; this shows that the firms are few about the entire market. Their products are highly differentiated and they do not have the power to influence one another in terms of pricing.
One or more firms can change prices but the rest cannot react to such changes in prices. This is what differentiates a monopolistic market and other types of market systems. In a monopolistic market, the available products may be similar and in most cases can perform the same functions; however, the way they are differentiated will determine the customer’s preference of the products while the companies could produce exclusively unique products and or services. In the process of differentiation of the products, the manufacturers add some features that will make the products unique in the market. The demand elasticity of price shows the probable proximity of near alternates; the lower the price of demand translates to higher prices from the monopolist.
The phone services providers are said to be enjoying some level of monopoly. In other words, most mobile phone providers offer products that can never be said to be a perfect substitute to the other. They are all able to perform almost similar functions. What makes mobile phones, iPhones and iPods look differentiated is the fact that they have additional physical features added to them. The different features enable them to perform extra tasks.
It is on the grounds of these additional features that the customers make their choices and preferences. The existence of monopolies in the phone industry is because technological innovations take place at a high rate; however, this happens at high costs which the industry players would like to cover within the shortest period possible. The phone services companies always patent their innovations to enjoy some level of monopoly. This gives them the advantages of monopoly for some time. This is one of the strategies used by the Apple Company when it comes up with innovations. This strategy offers most phone services providers a period within which they can exclusively provide services related to the innovations.
In the early years of mobile phone introduction in the world market, most companies enjoyed monopolies. The mobile phones were priced discriminatively in a way that the prices of one type of mobile phone varied greatly across the world market. Price discrimination was very distinct between the developed and developing countries. The new mobile phone technologies, in most cases, originated from the Western and other developed nations.
They first hit the markets of the developing nations. The products reached the developing nations at exorbitant prices while at the same time the prices reduced in the markets of developed nations. The geographical transfer in mobile phone services technologies may help create monopolies in some regions. How firms can create a monopoly is through legal patents and producing exclusively for a socio-economic class of people.
Works Cited
Brakman, Steven and Heijdra, Ben. The monopolistic competition revolution in retrospect. Cambridge: Cambridge University Press, 2004.
Froeb, Luke and McCann, Brian. Managerial Economics. London: Cengage Learning, 2009.
Hirshleifer, Jack, et al. Price theory and applications: Decisions, markets, and information. Cambridge: Cambridge University Press, 2005.
Stager, David. Economic analysis and Canadian policy. Indiana University: Butterworths, 1979.
Zawya. “Monopolistic prices: Collusion or incompetence”, zawya, 2009. Web.