Question55.1Monopoly”Monopoly is a marketstructure in which there is only one seller of a good or service that has noclose substitutes”. (Philip Mohr & associates, 2017, p. 180).
InSouth Africa there are a few number of monopolist firms, the three firms wouldbe:Transnet, Eskomand DeBeers.Transnet is characterisedas 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 arethe price maker and they determine the price level by deciding what quantity oftransport 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 isinsufficient to have more than one provider due to the high cost put up topower line. Since Eskom set their price they can decide to raise their pricesat 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 onlysell their stones to invite their invited clients at a no-negotiable pricewhich happens ten times a year.
“With its near monopoly as a trader ofrough stones, De Beers has been able to maintain and increase the prices ofdiamonds by regulating their supply. It has never done much to create jobs orgenerate 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 stablecountries, in part because of De Beers”. (The Economist, 2004) 5.
1.1 Profit-maximising”We assume that themonopolist firm aims to maximize profit”. (Philip Mohr & associates, 2017, p. 182).
For example Eskomis the sole supplier of electricity in SA; the market demand for electricity inSA 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 priceof its product. (Philip Mohr & associates, 2017)”Consider the diagram illustrating monopolycompetition. The key points of this diagram are fivefold.First,marginal revenue lies below the demand curve. This occurs because marginalrevenue is the demand, p (q), plus a negative number.Second, themonopoly quantity equates marginal revenue and marginal cost, but the monopolyprice is higher than the marginal cost.We see that the monopoly restricts output andcharges a higher price than would prevail under competition”.
(Lumen, 2017)According to Philip Mohr (2017), he confirmed that a, monopolist doesnot have a supply curve showing the quantities that will be supplied atdifferent prices of the product. Since the monopolist is the price maker anddoes 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 strategicallyinterdependent firms.” (David Makovah, 2018, p. 104)Offcourse SA has oligopoly industries in key sectors, to mention just threeamongst them Buildingand ConstructionFinancialinstitutionMediaThemonopolistic status quo has led some into a cartel like behavior where inthe Building and Construction industry they club together to determineand cap pricing which then stifles competition. This would automatically stopnew entrants (small and medium businesses). In some instances they thensubcontract some of their work into small and medium businesses paying themless which then affect the quality of service delivered.TheFinance industry has been alleged to be involved in found fraudulentactivities. I.
e. bank charges where 17 South African banks were liable forpayment of an admin penalty of 10% of their annual turnover (BusinessTech, 2017) TheMedia is being generally perceived to be politically bias and indirectlypushing certainly political parties’ agendas. And also taking itself as anactive participant indevelopingand directing the countries’ narrative. Research news about media and anccomplains. (Joyisani Maromo, 2017)Question 6 Cartel it not only affect consumer welfare, if also delays thedevelopment and innovation of the small and medium sized businesses. (Corlia Van Heerden & Monray Marsellus Botha, 2015, p. 309). It becomes a barrier fornew entrance, and dies automatically hence this promotes corruption andfraudulent activities and also perpetuates inequality.
According to Van Heerden and Monray Botha (2015), they further confirmedthat since the cartel are collusive, deceptive and secretive it is very hardfor smaller businesses to get the information or to compete with them.Challenges faced by small and medium sizedbusinessesThey sufferfrom the effects of collision in commerce and public procurement.They areforced to consume less or none of the essential goods due to high prices setthrough the cartel activityThey aredenied access to markets or subject to exploitative conduct by cartels (UNCTAD secretariat, 2013)Talking of the construction companies being involved in the cartel inSouth 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 settingup or joining a cartel with their competitors due to this struggling and failingto maintain profits.