Monopoly Power and Market Failure: A Case Study of Qantas

Running head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the Student
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1ECONOMICS FOR BUSINESS
Introduction
The present essay provides an overview on the firm that has considerable monopoly
power in Australia. The chosen firm for this study is Qantas Pure monopoly refers to the market
situation in which single entity is a sole manufacturer and seller of commodity or service in the
entire market. The monopolist possess monopoly power being the only seller in the market.
Monopoly Power usually occurs in the firm where it has market dominance in the sector.
Monopolies usually derive their market or monopoly power from the entry barriers to the market
(Adler et al., 2015). These barriers can be classified into four types based on few sources such
as- specific resources, natural monopoly, government regulation and deliberate actions. Abuse of
the monopoly power might involve setting of higher prices or limiting total output. Moreover,
abuse of this monopoly power might lead to problems for suppliers, deadweight welfare loss and
less choice. The inefficiencies in outcome that might occur if the firm was free to exercise such
monopoly power is analyzed in this study. The government intervention used or can be used for
curbing monopoly power and provide efficient outcome of the economy is also explained in this
essay.
Analysis
Monopoly relates to the market structure that is characterized by single seller that sells
unique commodity. In the monopoly market, sellers usually face no competition since he is the
only seller of products with no substitute. In this market, factors such as- ownership of resources,
government license, high startup cost restrict other seller’s entry in this market.

2ECONOMICS FOR BUSINESS
D=AR
MR
AC
MC
Quantity
Price
QcQm
Pc
Pm
Deadweight loss
Supernormal Profit
Figure 1: Monopoly graph
Source: (As created by author)
The monopolist might seek to attain profit by setting total output at which MR=MC. At
this point, price of the product is Pm and output is Qm. As compared to perfectly competitive
market, monopolist enhances price and decreases output. The deadweight welfare loss occurs in
comparison to the competitive market.
Over the last few years, there have been huge changes in the aviation industry of
Australia. The total number of travelers as well as freight volume that mainly passes through the
Australian airports have been doubled over the years. Karier (2016) has found out that all
Australian airport sector explicitly as well as implicitly possess market power to different
degrees. The Australian passengers, manufacturers, communities and economy have been mainly
paying price of monopoly power through high airport charges as well as freight costs, low
connectivity and less opportunity for national employment creation. The monopoly power of

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Australian airports is mainly amplified by inelastic demand for the airport services and lack of
airlines power in negotiating conditions and terms that are reasonable. The Qantas group has
been the first wave of the airport privatization and also sparked enhance in efficiencies as well as
productivity. At present Qantas group has huge market dominance in the Australian airline
sector. This airline entity presents threat to the economic well- being of Australia and strains on
its productivity. The Qantas Group has entrenched its monopoly power as it becomes impossible
for other airlines to access arbitration under National Access Regime. The network of Qantas
Group has important strategic imperative involving connecting foreign routes with trunk routes
that permit larger frequencies as well as more destinations. This airline firm believes the present
regulatory model applying to the airports has been effective in constraining monopoly power of
the airport operators (Taussig, 2013). Qantas also believes that the airport operators give set of
infrastructure-based services at airport. As several airport users need huge range of services, the
market power of airport is mainly observed in group of services provided. This airline entity
have considerable monopoly power in regards to sites for the parking services. According to
ACCC review of the aeronautical charges, Qantas has been abnormally earning high profits
specially from the car park services. In fact, the prices that Qantas charges for this services are
usually unrelated to costs. In fact, this airline entity has large maintenance facilities at total
number of airport locations. These facilities are mainly substantial and signify sunk investment.
This entity acknowledges that with respect to future investment in the heavy maintenance
facilities, it has been able to exercise level of choice relating to location of future investment.
However, with respect to these investments, Qantas has been captive to monopoly power of the
airport operators. The market power of Qantas has enabled to generate excessive returns from its
aeronautical assets (Laibson & List, 2015).