Econ 12 Spectrum of Markets
1.) What are the three types of monopolies? Give
details.
2.) What reasons are there for monopolies to exist
in Canada?
3.) According to the textbook, what are the two
types of oligopolies? How are they different?
4.) What are the methods for restricting
competition?
5.) What is a conglomerate?
6.) What is the advantage of large scale operations?
Econ 12 Spectrum of Markets
1.) Natural monopoly – A natural monopoly is when it is much
more efficient for one company to run the market. Example:
City metro
Legal monopoly – When the government makes it illegal for
more than one company to supply a good or service. The
copyright on this book is an example.
Combines or cartels – When a group of producers agree to limit
competition by fixing prices, limiting output, or dividing the
market geographically amongst themselves. Usually illegal.
Example: Drug cartels.
2.) Monopolies exist in Canada to provide goods and services
that it is difficult for more than one company to manage
effectively, to protect rights of inventors, and copyright
holders. Monopolies are almost always regulated by
government to protect consumers.
3.) Homogeneous oligopoly – When the different companies in
an oligopoly produce goods that are practically identical. For
example, there is almost no difference between the gasoline
purchased at different gas stations.
Differentiated oligopoly - When the different companies in an
oligopoly produce goods that are distinctive and easily
differentiated from their competitors. Example: There are a
number of differences between a Ford truck and a Ferrari car.
Econ 12 Spectrum of Markets
It is easier to market the benefits of your brand in a
differentiated oligopoly.
4.) Unfair competition – Cutting prices so low that smaller
companies cannot afford to stay in business. Prices can then be
raised when there is no competition.
Establishing a cartel – Entering into an agreement to limit
competition.
Interlocking directorates – Having the same director(s) run
multiple companies.
Mergers – Two or more companies joining forces and becoming
one.
Establishing a holding company – Creating a company whose
only purpose is to own many smaller companies. The holding
company can than make major decisions for the smaller
companies.
5.) A conglomerate is when companies in unrelated industries
combine to form one large company. A conglomerate has
interests in an incredibly wide ranging set of industries.
6.) Large scale operations have the ability to produce large
quantities of a product. Mass production leads to smaller
production costs, and these savings can be passed on to
consumers. Large scale operations also have the money to
Econ 12 Spectrum of Markets
engage in research and development, which can lead to
innovations in the marketplace.
Econ 12 Spectrum of Markets
1.) The automotive industry was the “good” oligopoly. When
the automotive industry is strong the American economy is
strong, people have jobs and things are moving.
2.) The telecommunication oligopoly was the “bad” oligopoly.
The small amount of providers means that Canadian consumers
pay exuberantly high prices, service is poor, and penalties are
high.
3.) The automotive industry is not thought of as poorly as the
telecommunication industry because it is an example of a
“natural” oligopoly. There are few firms because the price of
entry into the industry is so high. Telecommunications is easier
to enter, but the business practices of the “big three” have
driven out competition.