Buyers instantly and for free get all the parameters of the market and so are free to move from one vendor to another at will.
Companies know exactly your income and expenses, the price of all the resources and different technologies. Decisions are made under conditions of certainty.
Clearly, these four characteristics are so stringent that they can hardly meet the real market. However, the study of perfect competition market is a matter of not useless, because the proposed model of perfect competition can make the right conclusions, even if it is based on unrealistic assumptions.
Theory of monopoly
Monopoly in the economic theory called this type of market in which there is only one seller of certain goods. This is an extreme opposite of perfect competition. As the sole supplier of the goods, a monopolistic enterprise actually represents an entire industry. This difference determines its behavior from that of a perfect competitor.
The existence of monopoly due to the presence of four basic conditions:
1. One seller confronts a large number of buyers. If the market is the only seller of anti worth a single buyer, then this market is called "bilateral monopoly."
2. The absence of perfect substitutes goods. Monopolist serves only manufacturer of single unique product that does not have any close substitute products, forcing buyers to take with goods only from him.
3. Lack of freedom of entry. There exists a monopoly when other firms are no degenerate fit or impossible to enter into the industry. Entrance barrier ers are many and varied:
♦ availability of patents, government licenses, quotas, high tariffs on imported goods;
♦ control over the sources of raw material receipts and other specific resources;
♦ high transportation costs, contributing to the formation of isolated local markets.
Monopolies can be justified in terms of the highest cost-effectiveness, when economies of scale are so large that the only firm can provide the whole production at a lower cost than a few openly competing firms.The industries in which such a situation occurs, are called "natural mono poliyami." Here, the barriers to entry based on the features of technologies that reflect the natural laws of nature, not owned or government licenses. Favorable market conditions for natural monopoly Leah require their state regulations.
In different countries in different ways address the problem of regulation of natural monopolies. In the USA, natural monopolies are private companies, but are subject to special bodies. In Kazakhstan, the most directly controlled by the state, but in France they are relatively independent status within the public sector.
4. Perfect knowledge about the parameters of the market. Manipulating in order to maximize profit volume or price level, the monopolist has to know all the possible relations between prices and demand volumes.
Thus, the firm has monopoly power (power), if it can dictate its customers prefer prices and production volumes. The extent to which a single seller can use monopoly power depends on the availability of close substitutes for its product and from its share in the total sales in the market. So in order to have monopoly power, not necessarily be pure monopolist, but that it was pure monopoly is an extreme case of market power.
In conclusion we can draw some conclusions about the market results in a monopoly compared to the competition:
1) monopoly price higher than the competition;
2) production in a monopolistic market is higher than in a competitive market;
3) monopolistic market less efficient use of available resources;
4) monopolist has monopoly power, which
allows him to dictate prices and sales volumes.
