What is monopoly, Financial Management

Assignment Help:

MONOPOLY

Several governments consider it necessary to prevent or control monopolies. A untainted monopoly exists when one organisation controls the production or supply of a good that has no close substitute. Actually legislation may consider a monopoly situation to take place when there is limited competition in a particular market. For instance UK legislation considers a monopoly to take place if an organisation controls 25% or more of a particular market.

Governments consider it essential to act against an existing or potential monopoly because of the economic problems that can arise through the abuse of a dominant market position. Monopoly is able to lead to economic inefficiency in the use of resources so that output is at a higher cost than necessary.

Further inefficiency can occur as a monopoly may lack the incentive to innovate to research technological improvements or to eliminate unnecessary managers since it is able to always be sure of passing on the cost of its inefficiencies to its customers. Inefficiencies such like these have been seen as major problems in state-owned monopolies and have fuelled the movement towards privatisation in recent years. It has been usual that the competition arising following privatisation will lead to the elimination of these kinds of inefficiency.

Monopoly can as well result in high prices being charged for output so that the cost to customers is higher than would be the case if significant competition existed allowing monopolies to generate monopoly profits.

The government is able to prevent monopolies occurring by monitoring proposed takeovers and mergers and acting when it decides that a monopoly situation may occur. This monitoring is performed in the UK by the Office of Fair Trading which can refer takeovers and mergers that are potentially against the public interest to the Competition Commission for detailed investigation. The Competition Commission has the authority to prevent a proposed takeover or merger, or to allow it to proceed with conditions attached such as disposal of a portion of the business in order to preserve competition.


Related Discussions:- What is monopoly

Define the advantages of collecting early, What are the advantages of “coll...

What are the advantages of “collecting early” and how do companies attempt to do this? Money has time value.  The sooner cash is collected, the better.  Companies employ regional

Describe the types of financial ratios, 1. Describe the types of financial ...

1. Describe the types of financial ratios and other financial performance measures that are used during a venture's successful life cycle. Who are the users of financial performan

How to calculate rate of return?, Illustration Consider a Rs.1,00...

Illustration Consider a Rs.1,000 par value bond whose current market price is Rs.850. The bond carries a coupon rate of 8% and has a maturity period of 9 years. Wha

Conversion privilege, In convertible bonds, bondholders get a right t...

In convertible bonds, bondholders get a right to convert their bonds for a specific number of shares of the bond issuer. This privilege allows bondholders to take

What is the time value of money, What is the time value of money? The t...

What is the time value of money? The time value of money signifies that money you hold in your hand today is worth more than money you expect to receive in the future. Likewise

Determine current cost of equity, Your task is to determine CDW's current c...

Your task is to determine CDW's current cost of equity. Since the company is not yet publicly traded , you need to estimate its cost of equity from a set of comparable companies. U

Why are trend analysis and industry comparison important, Why are trend ana...

Why are trend analysis and industry comparison important to financial ratio analysis? Trend analysis assists financial managers and analysts see if a company's current financia

Determine the circumstances is a warrant’s value high, Under what circumsta...

Under what circumstances is a warrant’s value high?  Explain. A warrant’s value would be high while the stock prices, time to expiration, and/or expected stock price volatility a

Illustrate in brokered markets in trade intermediation, Illustrate the in b...

Illustrate the in brokered markets according to trade intermediation. In brokered markets: In brokered markets, brokers execute an active search function to match buyers and

Capital structure theory, Capital structure theory: Use the following ...

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd