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Monopoly Essay Question 1
"Having been found guilty, in April 2000, of abusing its monopoly, Microsoft, the software giant was ordered to be broken in two."
- Economist 7 Nov 2002
a) Why do monopolies exist? [ 10 ]
b) What are the relative merits or demerits of breaking up a monopoly like Microsoft? [ 15 ]
Suggested essay outline:
Part (a)
INTRODUCTION
1. (i) Define monopoly
Spectrum of Market Structures:
Definition: Most extreme form of imperfect market with little or no competition & firm supplies a major part of industry output.
Definition: Most extreme form of imperfect market with little or no competition & firm supplies a major part of industry output.
(ii) State the characteristics of a monopolist
· There are no close substitutes
· There is presence of barriers to entry.
· Demand is likely to be price inelastic
BODY
2. Why monopolies exist?
- EOS
In some industries, high overheads mean that the market size limits the no. of firms that can exist & simultaneously benefit from EOS in the industry. (Natural monopoly)
- Legal Barriers
Patent creates the exclusive right for an inventor to exploit his invention for a no. of years.
It has used its Windows monopoly of PC operating systems, built in the 1980s, to extend its grip on the software market. ...