Monopolistic | Market | 05th February 2022 | Virtual Wire
I am sure many of you have heard the term ‘Monopolistic Market’ before but do you know the meaning of it?
A monopolistic market is a market where only ONE company exists and they offer their products and services to the public. The monopolistic firm can enjoy super-normal profits in the long run by restricting output, raising prices of the products and services, if the model is theoretically monopolistic. The monopolistic firm has full control over market shares as well as the public. For example, Hindustan Aeronautics Limited (HAL) is a monopoly, Nestle Cerelac, ITC limited, IRCTC is a 100% state-owned company. Before moving forward with our discussion on the topic, let us first talk about the
EFFECTS OF MONOPOLISTIC MARKETS
In a monopolistic market ‘customer is not the king’, the Customer has to pay whatever the firm is charging for a product or a service.
In an economic sense, monopolistic markets restrict outputs which further implies less production which further implies a reduction in real social income.
The monopolistic market cannot fully and successfully put a restriction on the output because then they cannot enjoy super-normal profit in the long run.
Capitalism works with everyone from every perspective but there are some problems in monopolistic markets. Capitalism promotes competition. Competitive markets benefit all stakeholders. But capitalism needs effective regulation. In the absence of competition, monopolies emerge by exploiting consumers, destroying rivals, and corrupting the system through their enormous power.
Are we moving towards a monopolistic market?
India is continually growing as a vibrant competitive economy. TCS has grown in a highly competitive market and it delivers no threat to the economy. Liberalization has helped Indian companies to expand. Rising monopoly trends in limited sectors are not a good factor. Regulators have to gingerly work upon it. These rising monopoly trends can occur due to various factors like negligence on the part of the regulators, maximum revenue to be generated for the government from industry, and above all the judicial system’s approach upon viewing the condition of the market.
The Indian Market as we all know is not monopolistic but several companies are entirely monopolistic and are run by the government. Names of such companies are IRCTC-100%, NESTLE CERELAC-96.5%, HAL-100%, ITC-77%, COAL INDIA-82%. Mukesh Ambani’s RIL is almost a monopoly and has a great influence over Indian markets. RIL is present in sectors like telecom, oil, petrochemicals, retail. Mukesh Ambani’s reason behind his huge wealth is not innovation towards his products or services but monopoly and policies that could benefit his businesses.
India is slowly bur witnessing monopolies in the market which are increasing studiously. These monopolies were hit by a slowing economy and later by the pandemic. I feel the one sector that is tremendously affected is the Telecom sector because of the emergence of RIL and Airtel. Vodafone now VI is hanging by a thread. The centre needs to rise and curb the monopolization from the Indian market. The question of monopoly and competition is a double-edged sword that is ready to cut in both ways.
Why Monopoly is harmful?
If the company is a monopoly it can blindly raise the price of commodities because the firm knows that it has NO COMPETITION, therefore customers have to purchase their products.
Monopolies have minimal incentive through which they can improve their products and services. This implies that they will provide inferior products to the consumers.
A monopolistic firm can engage in price discrimination in which they charge different prices from different consumers.
The firm has fewer incentives to innovate and broaden its thinking process.
If the economy is monopolistic then consumers have limited options to choose from.
India’s economy cannot be a monopoly and if we are slowly inclining towards monopolistic markets then the government should step in and regulate it. India has a mixed cultural economy and inclining towards monopolistic markets will not benefit the Indian economy. Also, ‘Digital Monopoly’ is coming into play. Amazon for example helps local startups and get them under their company, eliminating the competition from the market. The sector has been evolved rapidly and is bringing major challenges. Government should pay heed to the firms that are slowly capturing Indian markets.