Monopoly
Essay Writing Skills - IGCSE Example 1
Case Study (Hypothetical): Introduced in 1977, Thums Up cola is dark chocolate color, fizzy, softdrink that is hugely popular among Indians. By 1993, when Coca-cola re-entered India, Thums Up already had an 80% market share. Thums Up was owned by an Indian company Parley. Having left with less than 20% of the market share and unable to compete with Thums Up, Coca-cola decided to buy majority of the shares in Thums Up. (https://en.wikipedia.org/wiki/Thums_Up)
Monopoly
Considering the information above discuss the possible reasons for Coca-cola to buy Thums UP.
Possible discussion could as stated below;
Well! Coca-Cola buying shares of Thums Up means the former is heading towrds merger and acquision of the latter.
Merger and acquision is the method that firms quite often use to buy a competing firm buy buying its majority of shares leading to a gradual takeover of the competing firm. Whereas, Takeover occurs when the management of a firm is replaced or influcence by the majority stake buyer firm to make decision in favor of the majority stakeholder. Lately, Elon Mask has been accused of taking over the social media firm Twitter by offer $43bn as per various media sources.
In the case study, it is mentioned that Coca-Cola has bought the majority of the share in Thums Up. This means Coca-Cola is very close to takeover Thums Up once it buys more than 50% of the the share in Thums Up.
Monopoly
Anyway, let us now analyze the reason why Coca-Cola bought majority of the share in Thums Up. Well! Thums Up had been a favorite drink among people in India since 1977 when they established their business.This must have made Thums Up a major competitor of Coca-Cola and the market leader. This has been the case since 1977 as they have been growing continuously. By 1993, Thums Up had 80% of the market whereas Coca-Cola had less than 20% along with Pepsi.
As the information provided in the case study reflects that Coca-Cola might have struggled to compete with Thums Up, so they must have decided to benefit from the success of Thums Up rather than struggle to compete.
Purchasing majority shares of Thums Up means Coca-Cola does not have to compete with Thums Up for the market shares as they can control the Indian cola market buy influencing the decision of making Thums Up board of management.
At the same time, with success of Thums Up cola and expansion in the size of the profit, Coca-Cola would be able to benefit as Thums Up has to share its profits with Coca-Cola.
To Conclude, I must say that, by buying majority of the shares of Thums Up, Coca-Cola not only able to save resources to compete with Thums Up but also able to enjoy the benefit of Thums Up being successful and then gradually own to use it as an additional range of products sooner or later. This may help Coca-Cola to maintain its Monopoly in the long term.
Essay Writing Skills - IGCSE Example 2
The English city of Kingston upon Hull has an independent telecoms network known as Kingston Communications (KCOM). It is the only provider serving the city and its surrounding towns and villages. People living there do not have many broadband options. The network remained independent when most other joined together to become British Telecom (BT) and it has remained as a separate company to this day. As well as broadband, KCOM also offers home phone and mobile deals which are available at a discounted price when purchased together. It will soon offer high-quality television packages. Its broadband is fast, with fibre optic packages which can reach impressive speeds up to 250 Mb. However, there are not available everywhere in the region and KCOM`s packages are more expensive than those in the rest of the country. This is especially true as they have low download limits. (Source adapted from: https// broadbandchoices.co.uk/guides/broadband/hull-broadband)
With reference to the data above and your knowledge of economics, evaluate whether a monopoly such as KCOM is always bad for the consumer. (source: IGCSE MAY 2021)
Possible answer -
As it is mentioned in the case study that KCOM is a monopoly, so let me first present my understanding on monopoly. Monopoly is a market structure where a single firm sells its goods or services to a large part of the market.
KCOM indeed a monopoly as it fits to the characteristics of monopoly such as single seller, high barriers to entry, unique product, and price maker. From the case study we can see that KCOM is the only internet service provider serving the city Kingston upon Hull. This means, KCOM has established monopoly in the region. The second instance is that the service KCOM provides is better than others such as they provide higher speeds of up to 250 Mb which seems to be a unique product in the region.
Anyway, KCOM charges high price for their services as they are the price maker in the market. This is evident from the case study that KCOM`s packages are more expensive than those in the rest of the country. That means internet users have to pay more than internet users in the rest of the country.
Another disadvantage of KCOM`s monopoly is that internet users can download very less content compared to other internet users in the rest of the country.
Besides that, internet users do not have other options in the region as KCOM must have set a very high barriers to entry such as higher marketing budget, higher start-up cost and complicated technology etc. this is against the consumer sovereignty.
As KCOM has set a monopoly so it may sometimes provide bad quality services creating inconvenience for internet users in the region. Unfortunately, internet users may not have any other options but to bear the inconvenience.
Due to setting up the monopoly successfully, it is possible that they may not have enough incentive to pursue continuous improvement in the product quality like now the way they have done such as increasing the internet speed up to 250 Mb. Instead, they may use their resources to engage in marketing activities more than improving the product quality in the future. This may cause internet users in the region not getting the same quality services as other internet users in the rest of the country in the future.
One more disadvantage is that, as there is no competitor in the region to challenge KCOM, so they may not have incentive to decrease their cost leading internet users to pay higher over the longer period till there is an emergence of a new competitor.
Though there are many disadvantages but not without the advantages to have a monopoly. Those advantages are as follows.
Monopoly might be charging higher price leading to making higher profits that they may use to facilitate R&D to develop new advanced services, processes or technology that may advantage the internet users as well as society as a whole. One of the examples of the new advanced services that they are going launch is high-quality television packages.
Though the price is higher for KCOM services, but it is not without providing the state-of-the-art internet services speeding up to 250 Mb. Which is far greater than any other competitors in the region. This will help the local businesses, students, and workers to download the content faster and be helpful to them with increasing their transactions or productivity.
The monopoly in the form of natural monopoly may also help in avoiding in the duplication of the resources leading to wastage of resources. As KCOM has already set the optical fibre to provide the internet in the region so any other firm doing the same will cause wastage of resources as the resources to provide the same services could be used in producing something else. So, the natural monopoly could be translated into better use of resources.
Another advantage of the monopoly is that the price of the good could be lower than others. This is due to monopoly enjoying the benefits of economies of scale. Enjoying the benefits of economies of scale mean KCOM would be able to operate at the minimum point of long run average cost curve. This means KCOM might be able to charge lower price than others in the market leading to internet users paying less. Though the price KCOM is higher than any other competitors at this point of time but may not be as high as now in the future. Prices may be high at this point of time due to expenditure on R&D to develop faster internet services. Once the cost of R&D is recovered KCOM might drop its prices lower than any other competitors in the country. This is evident from the case study that the process of decreasing the price has already started with the discounted price to avail home phone and mobile deals.
Though there are many advantages of a monopoly, but the advantages are brought into the reality to pass on to the internet users would depend on the objective of the owners or the board of directs of KCOM.
To conclude, I must say, whether monopoly is always bad for consumers or not that depend on many factors that I have discussed above. if the effects of the negative factors are greater than the positive factors then the monopoly will be considered as bad for the consumers. the opposite may be considered if the effects of the positive factors are greater than the negative factors.
0 Comments