Characteristics of a Monopoly

Characteristics of a monopoly


As a monopoly, “Wonks” has become the single firm within their industry and with that, they have the ability to control the prices at which they sell their products. This is because they do not face competition from other firms and there are no strong, immediate substitutes for their products. By controlling the market prices for their products, so long as consumers are still willing to pay the price, the Wonks remains a price maker and a profit maximizer. These are characteristics that are shared in all monopolies.

Unlike an oligopoly, Wonks would still benefit from charging a market price that would not turn away a significant percentage of their consumer base for cheaper alternatives. In Wonk's case, consumers would perhaps consider purchasing other snack food, like pita chips or rice crisps. Wonks would have to maintain a stable price so that it could retain its profits in the long run.

A possible benefit that may also be available to a monopoly is international competition. Given that Wonks is now the single producer of potato chips; they are likely to make substantial economic profits that would allow them to compete overseas. This could not only boost the quantity of their production on a global scale, but also encourage lower prices. The government would also have the incentive to subsidize this industry to account for the revenues that it would add to the nation's GDP.

Wonks would also have the opportunity to market and sell its products under different names at different prices. This is another example of price discrimination. Consumers may not have the information available to them to determine if the products are in fact only slightly different or exactly the same. A brand of chips may be sold at a higher price than the other for example. The one sold at a higher market price may also have been marketed more aggressively to consumers.

An example of price discrimination...