What is monopoly, Financial Management

Assignment Help:

MONOPOLY

Several governments consider it necessary to prevent or control monopolies. A untainted monopoly exists when one organisation controls the production or supply of a good that has no close substitute. Actually legislation may consider a monopoly situation to take place when there is limited competition in a particular market. For instance UK legislation considers a monopoly to take place if an organisation controls 25% or more of a particular market.

Governments consider it essential to act against an existing or potential monopoly because of the economic problems that can arise through the abuse of a dominant market position. Monopoly is able to lead to economic inefficiency in the use of resources so that output is at a higher cost than necessary.

Further inefficiency can occur as a monopoly may lack the incentive to innovate to research technological improvements or to eliminate unnecessary managers since it is able to always be sure of passing on the cost of its inefficiencies to its customers. Inefficiencies such like these have been seen as major problems in state-owned monopolies and have fuelled the movement towards privatisation in recent years. It has been usual that the competition arising following privatisation will lead to the elimination of these kinds of inefficiency.

Monopoly can as well result in high prices being charged for output so that the cost to customers is higher than would be the case if significant competition existed allowing monopolies to generate monopoly profits.

The government is able to prevent monopolies occurring by monitoring proposed takeovers and mergers and acting when it decides that a monopoly situation may occur. This monitoring is performed in the UK by the Office of Fair Trading which can refer takeovers and mergers that are potentially against the public interest to the Competition Commission for detailed investigation. The Competition Commission has the authority to prevent a proposed takeover or merger, or to allow it to proceed with conditions attached such as disposal of a portion of the business in order to preserve competition.


Related Discussions:- What is monopoly

Define market value in modigliani miller equation, Define in the Modigliani...

Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm? Th

Derivatives, Derivatives - Financial instruments whose value varies with va...

Derivatives - Financial instruments whose value varies with value of an underlying asset (like a stock, BOND, commodity or currency) or index like interest rates. Financial instrum

Fixed weight aggregates method - fisher''s ideal method, Fixed Weight Aggre...

Fixed Weight Aggregates Method In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These

Agency Problem, What is the potential of having agency problems

What is the potential of having agency problems

Call and notice money, These funds represent borrowings made for a pe...

These funds represent borrowings made for a period of one day to upto a fortnight. However, the mechanism adopted to lend funds to the call and the notice money m

The key stages of a typical procurement cycle, QUESTION 1 Discuss the r...

QUESTION 1 Discuss the role and contribution of the procurement function in an organisation. QUESTION 2 Discuss the main objectives of purchasing negotiations. Compare

State the significance of the cost of capital, State the Significance of th...

State the Significance of the Cost of Capital It must be recognized at the outset that cost of capital is one of the most difficult and disputed topics in the finance theory.

return on equity, Lee Sun's has sales of $6,000, total assets of $5,000, a...

Lee Sun's has sales of $6,000, total assets of $5,000, and a profit margin of 10 percent. The firm has a total debt ratio of 40 percent. What is the return on equity?

Compute full cost-financially-based rationale , Bill Nicholson wants you to...

Bill Nicholson wants you to help him prepare the financial case for moving the manufacturing operation to Andover.   He has specifically expressed interest in getting answers to th

Define the main objectives of the bretton woods system, What were the main ...

What were the main objectives of the Bretton Woods system? Answer: The major objectives of the Bretton Woods system are to acquire exchange rate stability and promote internation

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd