Competition and Market Power

Monopoly and Competition

Key Words and Phrases

public utility	ñ êîìóíàëüí³ ñëóæáè
regulatory agencies	ñ ðåãóëÿòèâí³ îðãàíè
perfect competition	ñ àáñîëþòíà, ïîâíà (íåìîíîïîë³ñòè÷íà) êîíêóðåíö³ÿ
perfect monopoly	ñ àáñîëþòíà ìîíîïîë³ÿ
to coin the term	ñ ñòâîðþâàòè òåðì³í
homogeneous product	ñ îäíîð³äíà ïðîäóêö³ÿ
market power	ñ ðèíêîâà ñïðîìîæí³ñòü
polar extremes of monopoly	ñ ä³àìåòðàëüíî ïðîòèëåæí³ êðàéíîù³ ìîíîïî볿
held theory	ñ òåîð³ÿ âîëîä³ííÿ (óòðèìàííÿ ïîçèö³¿)
threat of entry	ñ çàãðîçà âñòóïó
shared monopoly	ñ ãðóïîâà ìîíîïîë³ÿ
single-firm monopoly	ñ ìîíîïîë³ÿ îäí³º¿ ô³ðìè

A holder of a monopoly is a single seller who has exclusive control of the supply and marketing of some product or service. This exclusivity frequently enables the monopolist to set a selling price that is likely to be higher than it would be if competition with other sellers of the same product existed. A telephone company serving a community is an example of a monopolist. In the United States, however, because every telephone company is treated as a PUBLIC UTILITY, the prices it charges are fixed by state and federal regulatory agencies. Copyrights and patents are forms of monopolies granted by the government.

Competition and Market Power

Economists have coined the term perfect competition to describe the situation in which so many sellers compete that no one of them can influence the selling price. Few examples exist of perfect competition as defined by economists. Wheat farmers perhaps come closest to it. Such sellers are sometimes referred to as "price takers" rather than "price makers", and they theoretically have free entry and exit from markets, are independent, and have a homogeneous product to sell.

Market power is the term economists use to describe the ability to hold control over prices and profits. A monopoly has the greatest market power, and the seller under perfect competition has no market power at all. In the United States most businesses operate in industries falling between the polar extremes of monopoly and perfect competition. To explain the behaviour of firms in the broad spectrum of markets between these extremes, economists have developed theories about the differences in market power in various industries.

The most widely held theory assumes that the extent of a firm's market power depends on certain characteristics existing in the market where it operates. Three characteristics are believed to be especially important: (1) the share of an industry's sales held by its leading firms; (2) the ease with which new firms can enter an industry; and (3) the extent to which the products of a seller are differentiated from those of other sellers of similar products. According to this theory, originating in the works of the American economists Edward H. Chamberlin and Joe S. Bain, a firm's power will be greatest if it shares an industry with few competitors, if it is shielded almost completely from the threat of entry by new competitors, and if it sells a highly differentiated products that is distinct from all similar products. When a "big three" or "big four" dominates an industry, that situation is called a shared monopoly, because such firms are believed to behave almost like a single-firm monopoly. If these firms act together to control the supply and marketing of goods, they are known as an oligopoly or cartel.

Exercises on the text:

Ex. 1. Read and translate the text.

Ex. 2. Answer the following questions:

Who is a holder of a monopoly?

What is a market power?

What does a market power depend on?

What theories have economists developed?

What is the difference between a shared monopoly and a single-firm monopoly?

Ex. 3. Give Ukrainian equivalents for the following words and word combinations:

a holder of monopoly; a single seller; exclusive control of supply and marketing of some product or service; monopolies granted by the government; perfect competition; price takers; price makers; the greatest market power; are believed to be important; are known as an oligopoly.

Ex. 4. Complete the following words and word combinations. Explain their meaning to your groupmates.

To coin…; many sellers…; infl… the selling…; theoretically have…; … is the term economists…; the behaviour …; … broad … of markets; sellers of sim… products; shared….

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