Courses : Intermediate Microeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Monopoly in Microeconomics Monopoly is a form of market where there is only one seller or producer who controls the entire supply of products or services offered in the market. In a monopoly situation, there are no direct competitors offering the same product or service, so the seller has full control over the price of the product or service being sold. In a monopoly situation, sellers usually maximize profits by setting a higher price than in a perfectly competitive situation, so they can earn a larger profit. This can be detrimental to consumers, as they have no other alternatives and are forced to pay higher prices. However, a seller in a monopoly situation can also run the risk of losing consumers if prices get too high. Therefore, governments usually limit monopolies by antitrust laws or by allowing other competitors to enter the market through competition. In some cases, the government is also considering taking over control of the monopoly to ensure the availability of goods and services needed by society. Sellers in a monopoly situation can maximize profits by producing a lower level of output than in a perfectly competitive situation. This happens because in a monopoly situation, sellers have the power to increase prices by reducing the supply of products or services. By reducing output, sellers can increase the price of the products or services sold and earn greater profits. However, this strategy can trigger the potential entry of new competitors in the market. If the price of a product or service being sold is too high, consumers may look for cheaper alternatives, or even look for ways to produce the product or service themselves. If a new competitor enters the market and offers a lower price, the monopolist will lose market share. In addition, monopolists can also run the risk of losing consumers if prices get too high. If consumers think the price set is too high, they may switch to a cheaper product or service or look for other alternatives. Therefore, it is important for monopolists to consider the right price in order to maintain their market share and maximize profits. One way to maintain a monopoly position is to improve the quality of the product or service offered so that consumers are more likely to choose the product or service even though the price is higher. Monopoly is a market where there is only one seller who controls the supply of goods or services and there are no significant competitors in that market. In a monopoly, the seller has great market power and can influence the price and quantity sold. Some of the characteristics of a monopoly market include: 1. One seller: Unlike a perfectly competitive market, where there are many sellers, a monopoly market has only one seller. 2. Unique products: Products sold by monopoly sellers are usually unique and cannot be substituted with products from other sellers. 3. Barriers to entry: The existence of significant barriers to entry makes it difficult for competitors to enter the market and compete with monopolists. 4. Control over prices: The monopolist has the power to determine the price of the goods or services sold, since there are no significant competitors in that market 5. Economic profit: Because monopolists can charge a price above their margin production costs, they can achieve high economic profits. However, there are some disadvantages of monopoly market. One of them is the lack of competition which can result in high prices for consumers and the lack of innovation because there are no competitors that encourage sellers to develop new products. In addition, monopoly markets can also cause injustice to consumers and encourage unhealthy monopoly practices. The following are some theories related to Monopoly: 1. Traditional Monopoly Theory: This theory assumes that the monopoly is the only seller in the market and has the power to set prices. This theory states that a monopoly will maximize profits by setting a price where MR (Marginal Revenue) equals MC (Marginal Cost). 2. Modern Monopoly Theory: This theory assumes that monopolies do not always have absolute power to set prices. This is due to potential competition from similar or substitute products. This theory says that a monopoly will maximize profits by setting a price where P (Price) equals MC (Marginal Cost), or by maximizing long-term profits. 3. Discrimination Based Pricing Theory: This theory assumes that a monopoly can maximize profits by differentiating prices for different groups of consumers. This can be done because of differences in demand elasticity between consumer groups. 4. Monopolistic Competition Theory: This theory assumes that there are several producers who produce products that have small differences. This gives each producer a little power to set prices, because there are substitutes for other products that have these small differences. 5. Oligopoly Theory: This theory assumes that there are several producers who produce similar or identical products. This makes every producer has the power to determine the price and quantity of production which affects the price in the market.