Monopoly and Innovation in Market

This article discusses the relationship between monopoly and innovation in the market. It explores how monopolists are more likely to develop new innovations than firms involved in fierce price competition. The article also highlights the strategies used by companies to maintain their monopoly position in the market.

MANAGERIAL ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
“Monopolists are more likely to develop new innovations than firms involved in fierce
price competition”. Monopoly refers to alone to sell. There is a single seller in the monopoly
market selling particular product without having any strong competitions from other players in
market. A monopoly market have a specific product that is having unique and specific products.
Also firms through new innovation maintain monopoly over the market even after having strong
competitors (Dai, Guo. and Luo, 2019). There are companies that focus over price competition
instead of paying towards innovation of new products that can help them in creating monopoly.
MAIN BODY
Today market has expanded to large extent and still there are companies that have are
very strongly maintaining the monopoly in market. The reasons behind they a effectively
maintaining their position in the market is constant and continuous innovations in their specific
fields and industry. Innovations helps them in providing theme something new to the market that
is not provided by other players of the market (Dang, C.H.E.N., 2016). When companies
establish a monopoly over a market they can charge premium prices for their products as the
product are not available in the market.
Monopoly is defined as an economic structure where specific persons or entity is only
supplier of a specific good. In a monopoly markets the entity has the dominance over the
following factors profit maximisation price maker, strong barriers of entry and price
discrimination. Power sources of monopoly market are economies of scale and technology,
capital requirements, less substitutes, legal barriers and more deliberate actions.
Prices are determined by the entity having monopoly in the market. There are restriction
for entering into a monopoly market. Monopolists sells unique products having less substitutes,
that leads price elasticity of demand near to or zero. Price elasticity of demand of monopoly
products is lower than one. Therefore down ward sloping demand curve is faced by the
monopolists in monopoly market (Chen. and Zhu, 2018). Also to certain extents every good is
substitute of one another. Special characteristics of commodity lead to gap between the
substitution chain. Monopolists identifies the gaps that helps in excluding competition and
controlling supply of particular commodity. Monopolists use their selling power for
maximisation of their revenues making price discrimination. Monopoly gives company to have
the benefit of charging premiums for their products even the substitutes are available in market.
1

Some companies continuously make expenditures over research and development of their
products. This is performed by companies even when they are having monopoly over the market.
They are having high spending over the innovations. In market innovation is very important to
remain competitive. Market are always in search of new products and services that will be
enhancing their experiences. Innovations helps business to provide new or enhancing their
existing products. This costs less to the company to innovate the existing products than to search
for other means of maintaining monopoly in the market (Phelan. and et.al., 2017). This is a better
way of creating and maintaining monopoly as it will be enhancing the skills and strength of
company as new products will provide the companies how they were lacking behind. Companies
innovate new products as per the demands and requirements of customers. There are situations
where companies create demand of their product even when that is not a necessity.
On the other hand some companies focus over creating monopoly by cutting their prices.
They create competition by lowering the prices of products and lowering their profit margins.
Markets accept products that are available at lower costs as consumers are always in search of
better quality products at lower costs. Some companies are able to create monopoly in the market
by selling the quality products at considerable prices. This strategy is not effective in long run as
the face high risks of substitution. Though company may be the only one to sell product at lower
price due to its bulk prices. Best example of this Walmart that uses low pricing strategy for
creating the monopoly in the market. Any other company cannot provide the products at such
lower prices as it make purchases that enables it to negotiate for the lowest prices from suppliers
and to provide the products at lowest prices (Zeuthen, 2018). This has destroyed all the retailers
from the market.
Where the automobile giant Toyota instead of lowering its prices makes expenditures
over continuous innovation in the industry. Company has a monopoly in he industry for quality
product and innovative products.
REFERENCES
Books and Journals
2

Chen, F. and Zhu, D., 2018. Price Strategy and Network-Size Allocation Strategy in a Two-
Sided Monopoly Market. Available at SSRN 3146878.
Dang, C.H.E.N., 2016. Monopoly or competition: Market concentration of China's online games
and policies. International Journal of Simulation--Systems, Science
&Technology.17(45).pp.1-4.
Lee, S.U., 2018. Decision Algorithm for Survival New Establishment Stores Location in
Monopoly Market. The Journal of The Institute of Internet, Broadcasting and
Communication. 18(6). pp.213-220.
Phelan, J.J. And et.al., 2017. Monopoly Power of the Medical School Market and High Incomes
of US Physicians. International Journal of Economics & Business Administration (IJEBA).
(4).pp.19-34.
Shin, E., 2017. Monopoly pricing and diffusion of social network goods. Games and Economic
Behavior, 102, pp.162-178.
Song, M. and Wang, S., 2018. Market competition, green technology progress and comparative
advantages in China. Management Decision. 56(1).pp.188-203.
Wang, J. and Gioia-Carabellese, D., 2018, June. From market abuse in the banking law context to
creating monopolies: towards actual application of the anti-monopoly law of China 2007.
In The Annual Meeting on Law and Society (LSA 2018).
Zeuthen, F., 2018. Problems of monopoly and economic warfare. Routledge.
Dai, Z., Guo, L. and Luo, Q., 2019. Market concentration measurement, administrative monopoly
effect and efficiency improvement: empirical data from China civil aviation industry 2001-
2015. Applied Economics. 51(34). pp.3758-3769.
De Palma, A. and Monardo, J., 2019. Natural Monopoly in Transport.
Online
3

[Online]. Available through : <>.
[Online]. Available through : <>.
4