Potato Chip Monopoly Essay

A monopoly is an industry composed of only one firm that produces a product for which there are no close substitutions and in which significant barriers exist to prevent new firms from entering into the industry (Case, 2009). In a different definition, it can be distinguished by a lack of financially viable competition to produce the goods or services as well as to substitute goods. Monopolies often refer to a procedure by which a company could gain a determinedly larger market than what would be expected under an ideal competition.

This paper will emphasize on several components such as how a monopoly can benefit towards stakeholders or owners. Also, how the changes could take place according to price and output of the goods and services in a particular market place and how the market structure can be beneficial to the Wonks potato chip monopoly. This paper addresses a particular incident regarding a company called “Wonk” that produced potato chips. In 2008, two lawyers started acquiring aggressive potato chip firms with the plan to create a monopoly firm ‘Wonk’.

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From this perspective, those lawyers hired a consulting firm to manage and estimate the long-run competitive stability of this firm as monopoly. Again, with rule of marketplace a monopoly is a company which produces goods and services for which there no substitution in that particular area to compete for those certain products or services and prohibits new companies enter in that market to serve that community. By acquiring all the farms that produce similar products like potato chips those lawyers made a perfect monopoly of its kind.

A perfect or pure monopoly would definitely make this firm to control the entire business of that kind. This is how this “Wonk” takes over its significant position and which reflect on the market demand curve. This company with two lawyers now would have power over everything from output quantity, to price point and as well as customer choice. In this case the cost of production would the only thing remaining against them. When the firm has over all control to what extent of production would take place and how much production would be continued based on demand and thus the firm controls their position on the demand curve.

This would be a great example of Monopoly. By running a company as a monopoly there would be no difference between the product market and the company. (Case, 2009) Since the company is the market place where it would eventually decide what move should they make, what is going on in terms of external and internal operation of the business. This situation could generate a significant price unfairness, which would definitely impact families, consumers and suppliers of the goods and services.

This kind of discrimination could affect suppliers being charged a higher fee for the similar goods and services in the area where they reside or within their reach. In these circumstances, monopoly would ultimately affect the society and regular consumers. Some families would have to pay higher than others for trading the same goods and services if it was purchased from different location or city where this type of Monopoly does not exist. When a manufacturer negotiates a lower rate that might be a different case whether it acts as Monopoly or not it takes a different direction and breaks the monopoly games.

As a business owner or consumers, it is definitely not very beneficial to have a firm that is monopoly due to its power and control that affects consumers or the society. One of the most important components of monopoly is the improved price discrimination which often allows a monopolist to increase greater profit by charging more money to those consumers that require in higher demand and those who need the product more or who have a better ability to bear the cost. For example, most of the textbooks cost significantly higher in the United States than in a third world country like Sudan.

Monopoly embraced company has serious power to be in charge of price point, which can affect the business and supplier and then ultimately the consumer. In this case the business of Wonk as monopoly, the owners are required to only have only a few choices to acquire the potato chips ingredients products. This type of situation obviously playing a huge role in monopoly where owners selling price would be affected if the remarkable producer started increasing their price point based on this simple fact that they have the authority and own all market shares.

This control of the market would definitely affect the buyer’s price and finally when the consumers acquire. If a company increase or decrease the prices in the market, the producers can change and adjust the demand and total quantity of goods and services that manufactured for consumers. Monopolies are usually good for the company owners and shareholders when they know that the market is captured by their company. Therefore, they attract more people to buy shares due to better revenue and sound financial outcomes.

Similarly, the Wonk potato chips company would benefit by operating as a monopoly and take advantage of the situation. In this case, Wonk would have the precise knowledge and understanding of how they would move their products and fully aware of the market condition. Since they control the overall market they would not have any competition with their products to move whenever it requires. By controlling production and the amount of product to be received by the consumer, Wonk Company would control the selling price due to all the power of what a monopoly creates demand on their own.

Since, the company is free from competition they could easily increase their price of products as much as they want. Therefore they would benefit from this opportunity once all price position is recognized. If the company increases its price too high at certain limit, Wonk could face a serious challenge to satisfy the consumers. But, that affect in the long run. Ultimately Wonk has the control to set pricing by operating as a monopoly. This decision as to where to set pricing can ultimately impact the demand curve.

When company set its price the consumers could miss the value of products and services in a fair market. As a producer or a supplier it is very important to continuously satisfy customers and consumers and should be the first choice to satisfy from the chain. This situation could generate an impact on market demand resulting in a loss of revenue. By setting price point to low, the manufacturer may need to sell much more product to compensate for production costs. When dealing with monopolies in other areas except food manufacturing industry, we could determine that there is no limit to how high price point.

But for this particular industry, I would say that the price point would not increase right away since the Wonk has realized that it’s not viable for them to increase price point in an higher set, because it could drive all the customers away from the business. Of course I do believe that the company would increase the price in acceptable manner that consumers still keep faith on the company. Wonk, a monopoly business would have many significant benefits as an ideal, healthy company in perfect situation with any competition.

Since they are the only the producer of goods and services in the market the potato chip market in whole would be fully controlled by Wonk. Since A perfect competition industry would allow a fairness of price setting, most companies would sell competitive products, and there would no company larger to capture a unwanted price. Here, Wonks most certainly would buy out all relevant potato chip rivals and thus, they would control the potato chip industry which would not qualify for a perfect competition market.

Therefore, their profit would sky rocketed and on the other had consumers would be refrained from a better price for quality products that has competition. In an ideal world as a consumer, I believe everyone would contribute to a perfect competition and buy goods and services from a monopoly free, ideal competitive industry. In a competitive market the buyer has the option to choose what products is suitable for his or her needs and would have many choices to pick from. The biggest advantage for the customers would be many different option and types of products and many different prices (Case, 2009).

Monopolistic market drives the producer to shares many small segments of the market which usually helps keep the price of the products in an acceptable stage and consumers could afford happily. I believe different choice of prices would absolutely be an advantageous method for to the consumers. Wonks could face charges for practicing monopoly with the Sherman Act of 1890. The Sherman Act states that it is illegal for an individual or a company to operate a monopoly business or attempt to monopolize. There are many different government authorities are in charge to restrict the rules.

The offices that handle the authority to implement and regulate are Federal Trade Commission and Antitrust Division of the Justice Department. By enforcing these acts and laws the Federal Government has been fully determined to keep firms to stay away from monopolize. Monopoly business, Wonk restricts a good fairness market which only made profitable for itself but made the consumers refrained from open and fair choices of market shares. Wonk made them the only choice available for consumers regardless of quality products such as potato chips.

As consumer, I would not accept one choice of product. I would like to have many different price and quality products available for me to be fully satisfied. Thus it is absolutely clear the reason why federal governments put laws on the table to protect customer’s right and let other business have their opportunity to serve with variety of goods and services. It is clear that Wonk, a monopoly company certainly in control of everything and benefits from every direction from price to quality to consumer’s choice.

References

Case, K. E. , Fair, R. C. , and Oster, S. M. (2009) Principles of Microeconomics (9th ed). Upper Saddle River, New Jersey: Pearson Kelvin Lancaster (1974), Introduction to Modern microeconomics, Second Edition, United States: Rand McNally College Pub. Co Michael Parkin (2008) Economics, Eight Edition. United States: Pearson Education Published by Addison-Wesley, Inc. Paul Krugman, Robin Wells (2010), Microeconomics, Second Edition, United States: W H Freeman & Co

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