Posted on October 31, 2009 - by Jay

Near Monopoly

Photo by Mark Strozier

Companies with dominant global share are usually capable of generating supernormal profits. Sadly, in Singapore, such companies are hard to come by and hence this important factor is rarely looked at and discussed.

As Economics 101 would tell us, monopoly or near monopoly creates many conditions that is ideal for the market leader. These includes

1. Huge economies of scale – hence able to produce at a lower cost than most competitors

2. Bargaining power with clients and suppliers – to the extent of pricing out other competitors or ousting them in other ways

3. Advantage in capital outlay – a market leader does not need to spend as much as a competitor when increasing capacity bcos it can always leverage a lot on its existing structure (including distribution, sales and marketing etc)

4. As a result of stifling competition, the market leader now has pricing power. Basically it can price its product or services at any rate and customers will need to accept as there is no alternative. Read more…

Related posts:

1. Near Monopoly Part 2
2. Investing for Cash Flow
3. Should I Be A Trader?