Competition and monopolys

Economic Concepts -- Monopolies and Perfect Competition

Monopolies and Perfect Competition

In principle, monopolies and perfect competition scenarios represent the opposite ends of the spectrum of economic environments. A monopoly is a situation where one company or entity maintains exclusive ownership or control over a commodity or service without any competition from other companies or entities. Conversely, perfect competition describes a situation where competitive entities can enter a particular market by choice and where the price that all market competitors can charge for their goods or services is determined by market demand. This is a fundamentally different situation from a monopoly because monopolies enjoy exclusive control over the goods or services they provide and may set their prices without regard for competition because none exists.

Generally, monopolies exist where a single organization or entity owns the only property or other potential source of revenue, either because there exists only one source of those commodities or because the price of entry into the market is so great that it operates as a barrier to other entities to do so even though they could, in theory. Conditions conducive to perfect competition exists wherever there are unlimited sources of the goods or services and where entry into the market is essentially open to any entity that wishes to do so.

Examples of Monopolies

In contemporary American society, the principal source of monopolies is the legal protections afforded under patent and trademark laws. In that regard, pharmaceutical companies routinely rely on the monopolies guaranteed for specific periods of time by patent rights to maintain monopolies over their drugs. Likewise, the trademark rights granted for the phrase "Let's get ready to rumble" established a legal monopoly on the commercial use of that phrase owned by the individual who first began using it to introduce professional fighters in competition.

Examples of Perfect Competition

Many consumer goods such as dry cell batteries and vitamins represent perfect competition scenarios because there are no substantial barriers to entering the market beyond those that are common to any large enterprise capable of profiting from economies of scale as pertain to the manufacture and production of particular products. The composite raw materials of dry cell batteries and the ingredients in vitamins are equally available to any entity wishing to enter those markets. Moreover, there is little to distinguish the products of different manufacturers in those areas besides packaging and branding because the products themselves are essentially identical.

Many consumer services such as hair dressing and auto repairs also represent perfect competition scenarios because the barriers to entering the market are not very high and once in business, the prices commanded by individual proprietors are substantially dictated by prevailing market prices and the traditional dynamic of supply and demand.

Applying Saint Leo University Core Values to Economic Markets