WHAT MAKES A MONOPOLY?
“A monopoly is the only supplier of a good for
which there is no close substitute” (Perloff, 2012). This is because the buyers
have no other choices to get that particular product or service. A monopoly
generally rises when there is a barrier of entry which do not allow other firms
to enter that specific market. A monopoly is actually a price maker which means
that the firm is allowed to set their prices to gain supernormal profits. They
are mainly three types of barriers to entry which are natural, ownership and
legal.
In the country of Malaysia, Tenaga Nasional Berhad (TNB) is known for the one and only electricity utility company. This firm was found in the year 1990 and their role was to regulate electricity throughout the whole Malaysia. They are also the biggest power supplier in the South East Asia having a huge amount worth of assets. Only in certain countries like Malaysian, a firm is able to be a natural monopoly and a legal monopoly at the same time. Therefore, it is obviously seen that TNB is the only electric supply in Malaysia and this makes it a natural monopoly because the firm generates electricity and is a public utility and TNB is also a legal monopoly at the same time because the government restricts competition and new entries into this market by the granting of a government license.
Here in this firm, the reason to why their consumers do not have other choices of firms for electricity mainly because the government in Malaysia do not grant licenses or accept other new companies into the market. Even if or when the government accepts fresh new companies into the market, the economies of scale which means that an increase in the firm’s output leads to a decrease in the firm’s average cost will stop other firms to from joining and competing with TNB. For instance, TNB produces a large output of electricity and this enables their average cost of production to be decreased. This is good because firms can be more efficient when they exploit economies of scale (Danberg, 2012). With TNB having a low average cost of production, new firms will be afraid to come into the market because they will have to start their firm from as small as an ant with a very low output because not many people would know the existence of them. This means that for the new firm, their average cost of production would be really high and this will force the company to shut down quit from being in the market. It is also not right for a fresh company to come into this market because they would be endangering themselves by competing with a giant that controls the whole country and this would just cost too much of money.
Although
TNB is a firm that sets their own prices, they do not practice price
discrimination but they practice a single price-monopoly in Malaysian. A
single-price monopoly is a firm that sells each unit of its output for the same
price to all its customers. This monopoly price-setting strategy is practiced
in order to maintain equality to all Malaysians.
There are multiple advantages and disadvantages that had been found in a monopoly market like Tenaga Nasional Berhad.
When being a monopolist, they are able to make a difference in the demand and supply at any time because they have the power whether to generate electricity or not. Next, a monopoly may have the chance to have a greater supply at lower prices.
However as the saying goes, “when there is good,
there is also bad”.
The disadvantages being a monopolist is that they are allowed to make and set their own prices for their own profits of producing electricity. In addition, with “tariff” existing in Malaysia, TNB makes a huge loss from any and every house or company. Moreover, the “tariff” of the usage of electricity would be lower if their consumer does not consume a lot of electric power supple but on the other hand, if their consumer uses more power supply, the “tariff” would be even higher.
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