Participate in a discussion with your classmates regarding the monopoly markets
ID: 1193572 • Letter: P
Question
Participate in a discussion with your classmates regarding the monopoly markets that you encounter in your everyday life. Review the “EYE on MICROSOFT” caption titled “Are Microsoft’s Prices Too High?” on page 423 in the textbook. A monopoly is a market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms. We learned in previous lesson plans that resources are used efficiently when marginal benefit equals marginal cost. As noted in Figure 16.6(b), page 410 in the textbook, a monopoly is inefficient.
In addition, as noted in “Are Microsoft’s Prices Too High?", Microsoft’s prices are too high in the sense that they exceed marginal cost and result in fewer copies sold of the Windows operating system and Office application than the efficient quantities. Compare the graph in this section with the graph in Figure 16.6(b).
Post your discussion explaining and evaluating why a monopoly is inefficient and whether a monopoly is fair based on the two (2) views, i.e., fair rules and a fair result, as described in the textbook.
Your evaluation should be based on your experience dealing with monopoly markets, such as, Microsoft Office, in your everyday life, and your research conducted on this topic. If you discuss Microsoft don't just focus on marginal costs. Remember, they must cover their fixed costs, too.
Explanation / Answer
We can start our discussion with inefficiency reflected in monopoly.
In monopoly market structure, there is one seller and high entry barrier. It is the reason that seller does not follow the level of production at which marginal cost become equal to marginal revenue. Since, production level is lower that the optimum level, price are high in the market. In contrast to it, if more sellers are in the market, firms try to produce more and reduce the price thus efficiency takes place in the market. Thus, it creates the first reasoning behind inefficiency in monopoly market.
Secondly, in monopoly price discrimination takes place that means selling one product to different consumers at different prices. It also creates efficiency in the market.
It is true that Production level depends upon marginal cost / marginal revenue but fixed cost also plays an important role. Due to fixed cost, Microsoft already builds a huge setup that makes a high entry barrier to its competitors. Thus, no small firm can enter in to the market. It further leads to sustainable monopoly in the market.
As per the “fair results” thinking , monopoly seems to be fair when monopolist is poorer than the consumers and vice-versa. As per “fair rule” point of view, monopoly will be fair if everyone can choose to opt monopoly. Thus, in both views monopoly can be fair or non-fair depending upon the circumstances.
In our day to day life, we are becoming more dependent on computers that mostly uses Microsoft products. MS Office and MS Windows own bigger market share in comparison to all other sellers. It simply builds a case of monopoly. Also, retail pricing of Microsoft products are different from institutional pricing. It is the example of price discrimination. Thus, monopoly becomes inefficient.
Pl. attach the graph or add link of them also so that comparison and analysis can be done. Because, it is not available online.