Monopoly for the Potato chip industry Free Essay Example

A monopoly is a company that provides a product or service for which there are no close replacements and in which significant barriers of entry can either prevent or hinder a new company from providing competition (Case, et al. , 2009). Take into consideration the potato chip industry in the Northwest are not only competitively structured but are in long-run equilibriums. The firms were earning a normal rate of returns and were competing in a monopolistically competitive market structure. In 2008, two lawyers quietly bought up all the firms and then began operations a monopoly called “Wonks”.

For them to operate efficiently they had to hire a management consulting firm, which will estimate the different long-run competitive equilibrium. With this change comes several important things to consider that will be effected one being the stakeholders involved, price changes and the market structure to be most beneficial to the new corporation. By consolidating the oligopoly members of the Northwest potato chip industry, located in the United States, the legal professionals created a monopoly (Lindblom, 1948, p.

671). By taking away competition in the region, Wonks would now control their position on the market demand curve, where they can go from the produced quantity, to price point, even to where the product can be sold. Monopoly by definition is, “exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices,” (Monopoly, 2012). In all actuality a package product like a potato chip could not hold market domination for long.

Other manufacturers will transport their product into this region like paying slotting allowances, in order to obtain products for placement on the supermarket shelves. An industry that that comprises just one firm producing a product for which there are no close substitutes are called monopolies (Case, et al. , 2009). Although a monopoly has no other firms to compete with it still constrained by market demand (Case, et al. , 2009). With that said a monopoly must choose both price and quantity of outpost simultaneously because the amount that it will be able to see depends on the prices is sets.

However if the price is too high, it won’t sell anything. Thus a monopolist will set prices to maximize profit (Case, et al. , 2009). Stakeholders will both benefit and be hurt by the assembly of the new market domination. The Government will receive more revenues for taxes as the prices are raised and new income is earned for Wonks Industry. In the even that the business looks suspicious they may be forced to respond to a demand from other potato chip producers or consumers, to protect them from inappropriate or unfair trading practices (Lindblom, 1948, p. 671).

Some cooperating enterpises like supermarkets or corner stores, are more than likely to see an ability to sell Wonks products at higher prices to consumers, perhaps motivated by higher prices being charged to them by Wonks. Since Wonks are assumed to be the only potato chip industry in town the stores can agree to higher prices. They do this because the demand will be higher if the competition is lower (Lindblom, 1948, p. 671). Consumers on the other hand won’t see any advantage, since the only difference in the market is not having any competition (Case, et al. , 2009).

Inevitable price increases will come until a consumer refuses to pay the price. Because of that the company will have to reach a point on the demand curve where they will charge only what the customer will pay for the product (Case, et al. , 2009). Many technological and strategic forces shape market structure, including economies of scale, cost of differences among firms, entrants’ expectations and entry barriers (Bresnahan, 2012, 531). The empirical models of market structure from qualitative chose models of firms’ entry decisions. The models are presumed that we do not observe entrants’ revenues or costs (Bresnahan, 2012, 531).

Economic models are used to study market concentration in retail markets for new automobiles. One entry summarizes the competitive cost of entry. The second statistic measures the presence of entry barriers or differences in entrants’ fixed costs (Bresnahan, 2012, 531). Monopolistically competitive firms realize that the decisions they make will be reacted to by other members of the club (Case, et al. , 2009). Pricing will be profitable and comparable, product will be widely available, and vendors will try to attract certain segments with pricing or product offerings (Case, et al. , 2009).

It is likely the pro-monopoly potato chip companies made similar margins, their products are found next to each other on super market shelves, and the companies were similarly profitable (Bresnahan, 2012, 531). Enterprises derived from Monopoly ran industries, will stay to look for ways to maximize their profits (Case, et al. , 2009). This will allow products to remain the same, therefore nothing will change in how their were offered. The delivery will be consolidated, but plants not having cost advantage will be left behind in favor of lower cost facilities (Case, et al. , 2009).

When a monopoly becomes empowered the product mixes will be reviewed and the low production/less profit generating product will be eliminated (Case, et al. , 2009). In doing so a consumer could find one type of chip when there were actually three different types of chips available. The size of the products being offered, as well as the prices and the volume of the products will be tampered with as a result of market forces not influencing these decisions. (Case, et al. , 2009). Between monopoly and perfect competition are a number of other imperfectly competitive market structures (Case, et al. , 2009).

Oligopolistic industries are made of a small number of firms where each has a degree of price setting power. A Monopolistically competitive industries are made up of a large number of firms that acquire price setting power by differentiating their products or by establishing a name (Case, et al. , 2009). The sort term life of a monopoly market forces and consumer demand will all act to make the monopolistically competitive firm the best for both Wonks and for consumers. This can be assessed through the Sherman Anti Trust Act to agencies like the Federal Trade Commission and the Department of Justice.

A monopolistic competitive firm enjoys some of the advantages of both monopoly and free enterprise (Case, et al. , 2009). The Chip market has barriers that will act to keep all the players in the chip market safe, and margins will be protected while business are happy with their market share. They can also produce and sell with the knowledge that they will not have to manage production volumes or pricing in their marketplace. Some members of the oligopoly will enjoy harmonious business times (Case, et al. , 2009). Consumers can benefit from limited competition and have product provided at prices the free market will set.

product shortages, elimination of marginal products, price spikes will not affect their marketplace (Case, et al. , 2009). The chips will be available where the consumer expects and at price points they expect. The price will decrease or increase which will be industry wide this will keep from the producer from being singled out for price increases (Case, et al. , 2009). A monopoly is an industry with a single firm in which the entry of new firms is blocked. An oligopoly is an industry in which there is a small number of firms, each large enough to have an impact on the market price of its outputs.

Firms that differentiate their products in industries with many producers and free entry are called monopolistic competitors. A monopoly is a company that provides a product or service for which there are no close replacements and in which significant barriers of entry can either prevent or hinder a new company from providing competition (Case, et al. , 2009). With this change comes several important things to consider that will be effected one being the stakeholders involved, price changes and the market structure to be most beneficial to the new corporation (Case, et al., 2009).

By taking away competition in the region, Wonks would now control their position on the market demand curve, where they can go from the produced quantity, to price point, even to where the product can be sold. Stakeholders will both benefit and be hurt by the assembly of the new market domination. Monopolistically competitive firms realize that the decisions they make will be reacted to by other members of the club (Case, et al. , 2009).

Bibliography Bresnahan ,Timothy F. & Reiss, Peter C. Entry in Monopoly Markets. The Review of Economic Studies.

Vol. 57, No. 4 (Oct. , 1990), pp. 531-553. Case, K. E. , Fair, R. C. , and Oster, S. E. (2009). Principles of Microeconomics. (9th ed). Upper Saddle River, New Jersey: Pearson Prentice Hall. Lindblom, Charles E. The Union as a Monopoly. The Quarterly Journal of Economics , Oxford University Press Vol. 62, No. 5 (Nov. , 1948), pp. 671-697 Monopoly. (n. d. ). Collins English Dictionary – Complete & Unabridged 10th Edition. Retrieved October 08, 2012, from Dictionary. com website: http://dictionary. reference. com/browse/monopoly.