Characteristics of Monopoly Market Structure in Australia

Running head: ECONOMICS
Economics
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1ECONOMICS
Introduction
Market refers to a transaction relation between a group of buyers and sellers. With
varying number of buyers and sellers, degree of competition in the market differ in the
market leading to different characteristics of different market. Four widely discussed forms of
markets are perfect competition, monopoly, monopolistic competition and oligopoly. All
these markets differ in terms of buyers and sellers, level of competition, type of product,
marketing strategy, short run and long run profitability and other characteristics.
Understanding specific form of market is important to understand operation of firm and
market outcome (Jain & Ohri, 2015) The essay designs to discuss characteristics of monopoly
market structure in Australia. A related example of monopoly in Australia is electricity
network grid. Because of very high cost of setting up towers and wires, it seems efficient to
allow monopoly to the network service providers. The monopoly networks are inefficient in
the sense that a higher electricity prices are charged along with a relatively less industry
output.
Analysis
Monopoly
Monopoly is a polar opposite of perfectly competitive market. Monopoly refers to a
specific structure of market with a single seller engage in selling one unique product. In this
market, there is only one seller and numerous buyers. Seller in the market faces no form of
competition. In order to maintain monopoly position, the monopolist need to sell a product
having no close substitute. The market is known for high entry barriers in the market. Forms
of entry barriers in the market involve government license, patent or copyright, high cost of
starting up business and others (Friedman, 2017). The single seller in the monopoly market
has complete control on the price and hence, has a price making power. The strict entry

2ECONOMICS
barriers have implications for short run and long run profits of the monopolist. The
monopolist can successfully earn profit which is above zero economic profit not only in the
short run but also in the long run.
Figure 1: Market outcome under monopoly
Network business monopoly in Australia
The electricity network in Australia is regarded as a market structure with similar
characteristics as a monopoly. In contrast to industries where it seems reasonable to allow
several firms to compete in the industry, in case of electricity grid, it is cost effective to let
one firm to supply electricity in the nation (Quiggin, 2017) In the national electricity market,
network businesses are monopoly while in wholesale and retail sectors are competitive.
The transmission networks in the electricity markets consist towers and wires that can
run between them, transformers, reactive power devices, underground cables, switching
equipment, telecommunication and monitoring equipment. All these assets are capital
intensive leading to a very high fixed cost for setting up electricity network. The considerable
high cost of electricity poles and associated wires imply that electricity network services can