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In monopolistic competition, a company takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other companies. [1] [2] If this happens in the presence of a coercive government, monopolistic competition will fall into government-granted monopoly.
The government may also reserve the venture for itself, thus forming a government monopoly, for example with a state-owned company. [ citation needed ] Monopolies may be naturally occurring due to limited competition because the industry is resource intensive and requires substantial costs to operate (e.g., certain railroad systems).
In economics, a government-granted monopoly (also called a "de jure monopoly" or "regulated monopoly") is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement.
A state monopoly can be characterized by its commercial behavior not being effectively limited by the competitive pressures of private organisations. [1] [2] This occurs when its business activities exert an extensive influence within the market, can act autonomously of any competitors, and potential competitors are unable to successfully compete with it.
In the short run, economic profit is positive, but it approaches zero in the long run. Firms in monopolistic competition tend to advertise heavily because different firms need to distinguish similar products than others. [16] Examples of monopolistic competition include; restaurants, hair salons, clothing, and electronics.
Cars are a good example here; they are very different yet in direct competition with each other. This means there will be some customer loyalty, which allows for some flexibility for the firm to move to a higher price. In other words, not all of a firm's customers would leave for other products if the firm raised its prices. 2.
Although a regulated monopoly will not have a monopoly profit that is high as it would be in an unregulated situation, it still can have an economic profit that is still above what a competitive firm has in a truly competitive market. [2] Government regulations of the price the monopoly can charge reduce the monopoly profit, but do not ...
The emergence of oligopoly market forms is mainly attributed to the monopoly of market competition, i.e., the market monopoly acquired by enterprises through their competitive advantages, and the administrative monopoly due to government regulations, such as when the government grants monopoly power to an enterprise in the industry through laws ...