Question to produce. (Lumen, 2017) According to Lumen (2017)

Question
5

5.1
Monopoly

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

“Monopoly is a market
structure in which there is only one seller of a good or service that has no
close substitutes”. (Philip Mohr & associates,
2017, p. 180).In
South Africa there are a few number of monopolist firms, the three firms would
be:

Transnet, Eskom
and De
Beers.

Transnet is characterised
as a monopolist firm, as it is the South Africa’s state transport company.
Hence Transnet has control over the price of their services, meaning they are
the price maker and they determine the price level by deciding what quantity of
transport to produce. (Lumen, 2017)

According to Lumen (2017)
they confirm that by looking at the case of Eskom, they distribute electricity for South Africa. It is
insufficient to have more than one provider due to the high cost put up to
power line. Since Eskom set their price they can decide to raise their prices
at any time and most of consumers would still continue to purchase electricity.

According to The Economist
(2004), De Beers is the world’s largest producer of rough stones. De Beers only
sell their stones to invite their invited clients at a no-negotiable price
which happens ten times a year.

“With its near monopoly as a trader of
rough stones, De Beers has been able to maintain and increase the prices of
diamonds by regulating their supply. It has never done much to create jobs or
generate skills (beyond standard mining employment) in diamond-producing countries,
but it delivered big and stable revenues for their governments. Botswana,
Namibia, Tanzania and South Africa are four of Africa’s richest and most stable
countries, in part because of De Beers”. (The Economist, 2004)

 

 

5.1.1 Profit-maximising

“We assume that the
monopolist firm aims to maximize profit”. (Philip Mohr &
associates, 2017, p. 182). For example Eskom
is the sole supplier of electricity in SA; the market demand for electricity in
SA is also the demand for Eskom’s product. The market demand slopes downward,
the monopolist can only sell an additional quantity of output if it lowers the price
of its product. (Philip Mohr &
associates, 2017)

“Consider the diagram illustrating monopoly
competition. The key points of this diagram are fivefold.

First,
marginal revenue lies below the demand curve. This occurs because marginal
revenue is the demand, p (q), plus a negative number.Second, the
monopoly quantity equates marginal revenue and marginal cost, but the monopoly
price is higher than the marginal cost.

We see that the monopoly restricts output and
charges a higher price than would prevail under competition”. (Lumen, 2017)

According to Philip Mohr (2017), he confirmed that a, monopolist does
not have a supply curve showing the quantities that will be supplied at
different prices of the product. Since the monopolist is the price maker and
does not move along a supply curve as the price of the product changes.

5.2 Oligopoly

“An Oligopoly is a market dominated by a small number of strategically
interdependent firms.” (David Makovah, 2018, p. 104)

Off
course SA has oligopoly industries in key sectors, to mention just three
amongst them

Building
and ConstructionFinancial
institutionMedia

The
monopolistic status quo has led some into a cartel like behavior  where in
the Building and Construction industry  they club together to determine
and cap pricing which then stifles competition. This would automatically stop
new entrants (small and medium businesses). In some instances they then
subcontract some of their work into small and medium businesses paying them
less which then affect the quality of service delivered.

The
Finance industry has been alleged to be involved in found fraudulent
activities. I.e. bank charges where 17 South African banks were liable for
payment of an admin penalty of 10% of their annual turnover (BusinessTech, 2017)

The
Media is being generally perceived to be politically bias and indirectly
pushing certainly political parties’ agendas. And also taking itself as an
active participant in

developing
and directing the countries’ narrative. Research news about media and anc
complains. (Joyisani Maromo, 2017)

Question 6

 

Cartel it not only affect consumer welfare, if also delays the
development and innovation of the small and medium sized businesses. (Corlia Van Heerden & Monray Marsellus
Botha, 2015, p. 309). It becomes a barrier for
new entrance, and dies automatically hence this promotes corruption and
fraudulent activities and also perpetuates inequality.

According to Van Heerden and Monray Botha (2015), they further confirmed
that since the cartel are collusive, deceptive and secretive it is very hard
for smaller businesses to get the information or to compete with them.

Challenges faced by small and medium sized
businesses

They suffer
from the effects of collision in commerce and public procurement.They are
forced to consume less or none of the essential goods due to high prices set
through the cartel activityThey are
denied access to markets or subject to exploitative conduct by cartels (UNCTAD secretariat, 2013)

Talking of the construction companies being involved in the cartel in
South Africa, where the big construction companies like Murray Roberts,
Stefanuti, etc. were involved in rigged tenders and fixed prices. (Philip Mohr & associates, 2017, p. 193). The smaller businesses end up secretly setting
up or joining a cartel with their competitors due to this struggling and failing
to maintain profits.