Potato Chip Industry
Given that the new company is now run as a monopoly, how will this benefit the stakeholders involved, such as the government, businesses, and consumers?
The conventional economic case in opposition to a monopoly is that, since the cost structure is the same, a monopolistic business will manufacture goods at a decreased output in order to charge higher prices. The opposite is true in the case of a competitive industry. In a monopolistic market, not only do consumers suffer but also governmental efficiency is questioned (as a result of lower spending and tax rates) (Krugman and Obstfeld, 2008).
Another view of Monopolistic markets is that, manufacturers mostly take advantage of the economies as they produce and supply products and services on large scales which results in the fall of average total cost of the production. However, this fall in average cost ultimately increases the monopoly profits. Consumers also get some benefit by enjoying lower prices as this gain is also used to increase productive efficiency of the company (Krugman and Obstfeld, 2008).
Producers as well as consumers both are benefitted by enhanced economic welfare as provided by the economies of the scales (Krugman and Obstfeld, 2008).
Regulation of monopoly
In order to avoid economic welfare loss caused by the exploitation of the monopoly power, government regulates various monopolies. These regulators not only control the annual increase in the prices but also flourish new competition levels in potato chip industry (Krugman and Obstfeld, 2008).
The potato chip industry enjoys the monopolistic market structure in the Northwest of U.S.. During the year 2008 an investors' group bought the competing potato chip firms and created a new monopoly by merging all firms together. The new company had previously enjoyed a long run competitive equilibrium to be a successful part of a long run economic equilibrium monopoly. However, the newly formed monopoly will prosper more by altering the operations but this situation will only be beneficial for the monopoly of the company only a few stakeholders will gain a little portion of it (Krugman and Obstfeld, 2008).
The entry in a monopolistic market is easy because majority of the firms are present in the industry (Case, Fair, & Oster, 2009, p. 303). Exactly same products are not produced by the firms in a monopolistic market; in fact the same goods are manufactured by each firm but with a different touch. And as each product is different, therefore each firm sets a different price for its product. Thus a variety is offered to the customers by the potato chip industry as well (Krugman and Obstfeld, 2008).
An individual company which regulates an exclusive commodity and due to technology or some other obstacles has no rivals is said to be operating in a pure monopoly. In monopoly a product is produced in such circumstances as would have been produced in a competitive market at a greater price as compared to what its price would have been in a market where competition id present. The main point of change between 'perfect competition' and monopoly is in its evaluation of the in which a firm reacts on one aspect only: the demand curve of the monopolist moves downwards. This is also the case with the monopolistically competitive firm. In the long-term stable situation, it is only a distinct instance of monopoly where no profits are being generated. This analysis should enhance our appraisal related to the way a firm is acting. The reason is that it teaches us, to a certain extent, about the communication between the firms in a market. Besides this, it gives no information about the single firm (Maurya, 2008, p. 178).
In the context of the potato chip company, it is a new company and is going to be run as a monopoly. This will affect stakeholders in many ways. Government is going to be very much affected by this change in the functioning of the company, because the potato chips company, being the only one in the country would raise the prices of the chips thereby decreasing the income which in turn will reduce the level of expenditure as well as investment. At one side, a new company will benefit a few suppliers with its high volume while others would be at a loss. The increase in the prices with a decrease in the quantity would adversely affect the consumers (Krugman and Obstfeld, 2008).
Furthermore, we can also suppose that a monopoly generally reduces the development and advancement in the potato chip industry and enhances the prices for the customers. A monopolistic...
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