monopolistic

What is monopolistic?

Monopolistic describe that just one firm that exist in the industry. Monopolistic company is the price maker for the product or services. Second, there is a high barrier to entry the industry so that the others cannot enter the industry so that can get maximize profit. Monopolistic is the only firm that operating in the industry, so there is just one seller of the good that produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry. Lastly monopolistic company has the power of price of discrimination. A monopolist company can change the price and quality of the product. He sells more quantities charging less price for the product in a very elastic market and sells less quantities charging high price in a less elastic marker.

The example of the monopolistic company is ASTRO. They is the only firm that providing varieties of TV channels of different counties. Although they increase the price of the channel they also continue on going because they are monopolistic company.

·         How does a monopolistic company function?

1.       Only one firm that exist in the industry

2.       So that are no other competitor and that make maximize profit

·         Why monopoly can increase their price but no decrease in demand?

1.       This is because consumers have no other choice so that they can just continue to supporting the monopolistic firm.

·         How does it affect the consumers and economy?

2.       Consumers have no other choice although the product or services of the firm is expensive and the quality is bad.

3.       If there are too many of monopolistic, those monopolistic company will try to get the maximize profit and inflation of economic will occurs.

4.       Due to the monopolistic company trying to get the maximize the profit, so they will increase the product or services, so the total output of the company will increase. The gross domestic product of the country will increase.  

·         Spending Power

1.       Spending power of consumers will increase due to consumer willing to pay more than the market price

Elasticity of Demand

Price elasticity of demand is the rate that expresses the responsiveness to price changes.

As a rule, there are products with different price elasticity. Knowledge the elasticity of demand for the product has great practical importance. For example, sellers of goods with a high elasticity of demand can set lower prices in order to dramatically increase sales and get quite more profit than if the price of the product was higher. Demand is elastic for goods whose value is palpable to the family’s budget. It can be car, furniture or household appliances.

If the products have substitutes the elasticity of demand will be higher. The demand for the current brand of shampoo, Dove, can be a good instance of it. If the price of this brand of shampoo rises, most buyers will go smoothly for other varieties. (Loreal, Pantene and etc.).

Inelastic demand – when increase or decrease of prices, in general, has no effect on the amount of consumption. Goods with inelastic demand are usually the goods which are necessary. For some it is clothes, for others – drugs. On holidays, for example on Christmas, you need to buy presents and Christmas tree, but the price for them will be high. Nevertheless, you will buy it, because for that period of time it is necessary. Also the samples of goods with inelastic demands are products which don’t have subtitles like petrol, bread, salt; products with high quality like Rolex watches, Ferrari, Prada and etc. 

As we remember, the revenue from sales of products is equal to the quantity of sold goods multiplied by price. How are revenue and elasticity of demand related to each other? And how can seller make a profit using price elasticity of demand?
If demand is elastic at the price (Edp> 1), the reduction in price will lead to increase in the amount of seller’s revenue and increase of price will reduce it. That is, the dependence of the total revenue from the seller’s price changes in the case of elastic demand curve is inverse.
If demand is inelastic to price (Edp <1), the price reduction will lead to decrease in total revenue producer, and rise of price will increase in total revenue. The elasticity of demand is often very important for companies who need to find a price that will maximize the profit from sales, and hence it. If there is Unit Elastic Demand (E = 1), the value of revenue will not change under any circumstances.

Written by Zarina

Price Theory : Market Equilibrium

Chicken is often used by Malaysian in their daily meals. It brings nutrients in our body but sometimes the price of it can be really surprising. During non-festive seasons, price of chicken is normal. Because the demand of the chicken is not high. It matches with the sellers’ plan how much will they produce. There is no price increase or decrease of the chicken.

But during festive season especially Hari Raya Aidilfitri. The demand for chicken increase drastically. Customers want to buy more than usual as they will celebrate with family and friends. It creates an excess demand and shortage of chicken occurs when the seller sets the market price lower than the equilibrium price.

To overcome the price problem, the government put a legal limit on how high the price of the chicken can be, that is called the price ceiling or maximum price. To make it effective, it must be set below the market equilibrium. For example, the normal price of the chicken is RM 7.00 per kilo and the price can increase to RM 8.50 per kilo in the wet market.

Not only that, the price of the chicken is not always high or in normal price. It can decrease in one period of time. For example, during the development of H5N1 avian influenza that killed a man in China around early this year. Even though the virus is not in Malaysia, Malaysian government take precaution by screening the temperature of every passenger in the airport after landing. Because of the bird flu, some Malaysian citizen cut down the amount of chicken in their meals. This situation creates an excess supply and surplus occur when the producers sets the market price above the equilibrium price.

This is why the producers have to decrease the price so the supply comes back to normal and the original equilibrium is made. The price floor is set by the government to make it legal to put a limit on how low the price of the chicken can be. The price floor must be set above the normal equilibrium price to see a big difference.

Consumer surplus is the difference between the price customer willing to pay and the actual price of the product. For example, the maximum price of the chicken is RM 8,50 per kilo, but the customers willing to pay more just to get the product.

Whereas producer surplus measures willingness of the producers to supply goods and the price they actually receive. The example given as, the actual price of the chicken is RM 7.00. But due to the bird flu, customers are not willing to buy at the price. 

Factor Affects Demand: Substitutes

Factor Affects Demand: Substitutes

            Today, many things can be served as replacement for one another.  This good can be the substitute for another good.  For example, butter can be substituted with margarine, McDonalds and Burger King can be substituted with each other, Coffee Bean can substitute with Starbucks or vice-versa and many more.  These things are related goods.  They can be resembled in term of their functions, taste, packaging and others.

            The common example of substitutes that everybody knows is Coke and Pepsi.  Both of them are the famous beverage around the world.  Before that, there is also a “Cola Wars” between the two brands.  Some people support coke but some support Pepsi depend on which one they more likely to be fond of.  For me, I like both Pepsi and Coke.  They are related goods which both of them are soft drinks and even the colour is also the same.

            Even as the two brands fight to differentiate themselves by taste, packing design, demographic, at least one thing remains more likely the same between the two brands is price.  Both of the brands have not much different in their price.  But, now the question is, if one day, one of the brand increase its selling price which is more expensive compared to the other, will the consumers switch to another brand?

            For Coke and Pepsi, if one of the brands prices itself much higher, it may experience declining demand.  On the other hand, if the price of the brand is lower, it probably has more demand.  However, some people may have more favor to one of the brand.  Although the price of that brand increases, they may still support the brand instead of the other.

            In my opinion, if the price of one good increases, the demand for the substitute increases.  Yet, for Coke and Pepsi, different people might have their own opinion on the effect of pricing strategic on the brands.

By Lee Lin Lin

Astro Monopoly the Market

ASTRO Monopoly the Market

 by Arlenne Vanessa Goh(0311000)

                As we all know, Astro is a Malaysian direct broadcast satellite Pay TV service that has been in service since 15 years ago. ASTRO which stands for All-Asian Satellite Television and Radio Operator is the only cable and satellite TV service operating in Malaysia. It transmits digital satellite television and radio not only to Malaysia, but also Brunei and other countries as well.  In addition, their services are not only limited in serving consumers in households but has substantive coverage in commercial establishment such as hospitals, hotels, bars and restaurants. They have been upgrading their services from 8-radio stations and 22-television channels to satellite broadcasting form of program for general used 5-satellite television channel used to translate Malay, English, Chinese, Cantonese and Tamil in various channels, then few years later adding another 20-saV service. In 2007, they have introduced another new near-video on demand channel featuring the latest TVB dramas from Hong Kong and also Australian Network to their platform. A total of 31-satellite television channels have been apportion for this new service. Two years later, they started bringing in new pay television packages such as Mustika pack. As for the years following it, they have add in Sports channels and international movie channels such as AXN, iTV Granada, and National Geographic. On 2010, they have presented the first High Definition (HD) broadcast in Malaysia under the brand name Astro B.yond followed up by Astro B.yond PVR where you canAstro because of its quality of service and the moderate price charged by themg it difficult for new firms to get into this market.  My opinion is, Astro is a satellite television company which has successfully established its objectives of providing entertainment and a window for Malaysian society to the outside world. Unfortunately to those who are trying to get into the field, it wouldn’t be very easy because Astro has monopolized the industry and has set a high barrier which makes it a lot harder for anyone else to enter. To me, the more companies entering this industry,the more competitive the market in Pay TV service will be in terms of the pricing of services customers will have wider choices.