Revenue variation in the labor market
There may exist two forms of businesses in the labor market. In this context, labor market will refers to the market in which the workers compete for jobs while the employers compete for workers. The first is a monopoly which is the sole producer of a specific product. The other is the competitive business where rivals compete for similar interests. This paper will focus on the chance that a monopoly has to earn higher revenue than their competitive counterparts. Introduction
A monopoly will exist in a market when only one firm supplies the output in an industry. A specific enterprise or individual has powers to significantly determine which other individuals will access a particular service or product. The result is lack of substitutes or economic competition. A closely related term is monopsony which means the existence of a single buyer for a product. A government monopoly is that which is granted by the state to allow venturing into risky investment or enrich some domestic constituencies.
On the contrary is a competitive industry. This will be in competition with other industries in the same line of business in the provision of services or goods. Monopolies generate more revenue than their competitive counterpart for the same products at the same prices in the labor market. In the absence of a competitive market, the profits reaped are essentially monopoly profits. These firms, referred to as price takers, determine the price of their products, known as monopoly prices.
Such prices result in economic profits that are normally higher than the normal profits. The competitive industry on the other hand has to compromise with lower profit than the normal profit. A customer can easily buy a product from the industry as easy as from the rival industry. The profits obtained form these products should therefore be monitored and minimized as possible so as to retain customers. The higher turn-overs allow monopolies to invest in research and development to improve their products and retain expertise knowledge.
A monopoly has the power to determine the price of its products (monopoly price). Price is optimally set such that the marginal cost and the marginal revenue equal where optimum output meets the demand (Farrell & Gallini, 1998). For a monopolist, this price is higher. It subsequently implies more revenue as compared to the competitive industry that will have to work within the limits of the optimum price. Monopolies have the advantage of regulating the output so as to increase their prices.
This is accomplished by reducing supplies so as to increase demand. In a competitive market however, if one industry reduces its supplies, then the rival takes the opportunity to increase its output to meet the demand. Economies of scale favor monopolies than the competitive industries. Since these companies are the sole producers of the respective products, they enjoy the advantage of Large scale production. Competitive industries on the other hand have to share the labor market hence divided production for each industry.
They often experience low production as they do not enjoy vast markets like their monopoly counterparts. The economies of scale would thus benefit monopolies more than the competitive industries. Finally, monopolies are protected by the government and receive incentives for their operations. They access government franchises like power and telephones at subsidized costs. Their expenses having been minimized, monopolies therefore enjoy the benefit of adequate resources to induce competitive workers and technology as compared to their competitive counterparts.
The involved government may also patent specific products for the monopoly thus giving it exclusive ownership thus prohibiting other entrants from producing the same product. Despite these capabilities endowed with monopolies, proper regulations need to govern their decisions. Exaggerated prices or profit margins may lead the consumers to opt out of the consumption of these products. The fall in demand will lead to a fall in revenue.
Farrell, J. & Gallini, N. T. (1998). Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition. MIT Press.