in economic theory The place or condition where sellers and buyers meet is called a market. In theory, a market can be perfect. (perfect competitive market) where sellers and buyers have the same number Therefore, neither the seller nor the buyer has the power to set the price.
but in reality Markets are often imperfect. There are times when there are few sellers who buy in bulk (oligopoly), and there is only one seller in bulk (monopoly). oligopoly marketLet’s talk about monopolistic markets and the following examples:
The meaning of a monopoly market
as mentioned above A monopolist market is one where there is only one seller of a good or service, but many buyers of these goods or services. The word monopoly comes from the Greek word monos (one) and ‘polein’ means (sell).
In a monopoly market, sellers have a lot of power to set prices. People will still buy the products that are being sold. The reason is that no other seller sells that or a similar product.
A monopoly market exists because:
- have an official license from the governmentExamples are Pertamina and PLN, which happen to be major producers and distributors of fuel oil (BBM) and electricity in Indonesia. The domination of these two state companies is protected by the 1945 Constitution, Article 33, Paragraph (2) and Paragraph (3).
- ownership of resourcesFor example, PT KAI became the only rail transport company in the country due to its resources in the form of carriages and rails that existed since the days of the Dutch East Indies.
- Copyrights and patents on certain products. Only given to certain companies
- High initial cost of entering the industryAn example is Google. Until now, Google remains the largest search engine in the world with a 91.8% market share in the search engine market. This means that 91.8% of internet users worldwide use Google. This market share is difficult because to compete with Google requires a lot of industry entry and management costs.
Features of a monopoly market
1. One-company industry
Goods and services produced by this monopoly cannot be produced by another company. As a result, buyers cannot move to other hearts even if the price of goods increases.
An example is the fuel market in Indonesia. The state-owned company controls at least 50% of the Indonesian fuel market. This figure is greater than the market share of other companies working in the same field such as Vivo, Exxon, Shell and others in Indonesia. You can say that POM gasoline with competitor labels can only be found in big cities.
2. There are no substitutes that are the same.
In addition to not being able to find the same product. Products produced by companies that monopolize the market cannot be substituted, such as fuel for vehicles.
Motorized vehicles as means of transport can be replaced by walking or bicycles. but until now Motorized vehicles still consume fuel. The concept of electric vehicles is still in development.
3. It is difficult for other companies to enter this industry.
as mentioned above In general, companies that can be monopolized are those that are licensed by the government. or be involved in an industry that requires high capital to enter As a result, it is difficult for newcomers to enter.
4. The company has the power to set prices.
In a perfectly competitive market Buyers and sellers do not have the power to set prices. The opposite happens in a monopoly market. Because there are no competitors, either the same products or substitutes. Companies that dominate this market therefore have more power to set prices.
For example, the increase in fuel prices, although over the past 22 years the price of fuel has continued to rise. But Indonesians still buy this fuel. The reason is that there is no alternative fuel for automotive fuel. Besides, there are no other manufacturers besides Pertamina, except in a few places.
Therefore, consumer protection is required in this industry. This consumer protection can take many forms. One of them is fuel subsidies. Fuel subsidies are needed due to monopoly markets. Fuel is a basic need for most people and for political reasons.
5. Do not advertise in any form.
It is necessary to advertise to persuade consumers to buy the company’s products and not the competitors’ products. Due to the absence of competitors and the state of demand for the company’s products. It is therefore not surprising that any form of advertising or promotion is not necessary in a monopolistic market.
An example of a monopoly market
in Indonesia Strategic sectors dealing with broader community needs are controlled by the state. According to the 1945 Constitution, Section 33, paragraph (2) and paragraph (3), which means that
(2) The soil, water and natural resources contained therein are controlled by the State and used for the highest prosperity of the country. (3).
It is therefore not surprising that many state-owned enterprises (BUMN) have become monopolized over their industries. Examples:
- Pertamina: In the fuel industry
- PLN : In the electricity generation and distribution industry
- PT KAI: In the rail transport sector
- PT PELNI: In the water transport sector
- PDAM : In the water supply sector for daily needs
- ANTAM : In the production and distribution of gold.
Advantages of a Monopoly Market
The main advantage of a company operating in a monopoly market is the potential for huge profits. Because these companies don’t have to worry about marketing and advertising costs.
if not handled properly A company with such a monopolistic market does not need to innovate. The reason is simple: even without marketing or innovation, The products they produce will continue to be purchased by consumers. and no competitors entered
However, this lack of innovation could also send the company to the grave. Let’s take a look at the example of Nokia. This Finnish company was predicted to become the world’s largest mobile phone company in the mid-2000s, but due to its reluctance to adapt to smartphone technology and Android (and iOS) ) faster. Nokia finally lost in 2013.
In addition to Nokia, there are also state owned company Until now, it had a monopoly on the industry and had a bad image in the public eye due to its lack of innovation. Bulog cannot deny that BUMN’s status led it to produce and distribute low-quality rice in the past.
For this reason, in recent years, the company has been trying to improve the quality of the rice it distributes. The label of being a producer of low-quality rice is still etched in people’s memories.
Disadvantages of a Monopoly Market
- taking advantage of consumers
due to high influence Companies that operate in a monopoly market can therefore set prices as high as possible to increase sales. Therefore, there is a need for legislation that regulates consumer protection from this practice, for example those that regulate maximum retail prices or impose subsidies.
- lack of innovation
In the absence of competitors One of the challenges of companies operating in monopolistic markets is the lack of innovation and efficiency. Their products will still be bought by the public.
However, this innovation is still essential to lasting the company’s monopoly (see Nokia above for example) and making a good impression on society. An example of a monopoly that continues to innovate is PT Kereta Api Indonesia (KAI).
since ancient times Trains are an alternative mode of transportation for Indonesians. (Especially those living on the island of Java) who want to travel long distances, so even without innovation. The railroad is still in use. Although the service quality is not good.
However, there was a major shift when the company was led by Ignaius Djonan in 2009-2014. There have also been improvements in the way things work and services. Starting from cleaning the carriage to polishing the service. to raising the salaries of KAI employees. “Fast form of transportation “But dirty and often delayed” is a form of transportation that “convenient and on time”
A monopolistic market is one with one or more sellers and a large number of buyers. As a result, sellers have great power to influence prices. nevertheless Companies that participate in this type of market will continue to innovate so that they can survive and have a good image in the public eye.
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