Indian Railways and Its Continuing Monopoly

Indian Railways abbreviated as IR, is the state-owned railway company of India, which owns and operates most of the country’s rail transport. It is overseen by the Ministry of Railways of the Government of India. Indian Railways has one of the largest and busiest rail networks in the world, transporting over 18 million passengers and more than 2 million tonnes of freight daily. It is the world’s largest commercial or utility employer, with more than 1. 4 million employees.

The railways traverse the length and breadth of the country, covering 6,909 stations over a total route length of more than 63,327 kilometers (39,350 mi). As to rolling stock IR owns over 200,000 (freight) wagons, 50,000 coaches and 8,000 locomotives. Railways were first introduced to India in 1853. By 1947, the year of India’s Independence there were forty-two rail systems. In 1951 the systems were nationalized as one unit, becoming one of the largest networks in the world. IR operates long distance and suburban rail systems on a multi gauge network of broad, meter and narrow gauges. It also owns locomotive and coach production facilities.

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Organizational Structure Indian Railways is a department owned and controlled by the government of India, via the Ministry of Railways. As of June 2009, the Railway Ministry is headed by Mamtha Benerjee, the Union Minister for Railways and assisted by two ministers of State for Railways. Indian Railways is administered by the apex management organization, Railway Board , also called the Ministry of Railways. The board is headed by a Chairman who reports to the Minister of Railways. The board has five other members in addition to the chairman. The General Managers of the zonal railways and the production units report to the board.

Railway Zones [pic] A Schematic map of the Indian Railways network showing various zones. [pic] The headquarters of the Indian Railways in New Delhi Indian Railways is divided into zones, which are further sub-divided into divisions. The number of zones in Indian Railways increased from six to eight in 1951, nine in 1952, and finally 16 in 2003. Each zonal railway is made up of a certain number of divisions, each having a divisional headquarters. There are a total of sixty-seven divisions. The Kolkata Metro is owned and operated by Indian Railways, but is not a part of any of the zones.

It is administratively considered to have the status of a zonal railway. Each of the sixteen zones, as well as the Kolkata Metro, is headed by a General Manager (GM) who reports directly to the Railway Board. The zones are further divided into divisions under the control of Divisional Railway Managers (DRM). The divisional officers of engineering, mechanical, electrical, signal & telecommunication, accounts, personnel, operating, commercial and safety branches report to the respective Divisional Manager and are in charge of operation and maintenance of assets.

Further down the hierarchy tree are the Station Masters who control individual stations and the train movement through the track territory under their stations’ administration |Sr. No. |Name |Abbr. |Headquarters |Date Established | |1. |Northern Railway |NR | Delhi |April 14, 1952 | |2. |Northeastern Railway |NER | Gorakhpur |1952 | |3. Northeast-Frontier Railway |NFR | Maligaon(Guwahati) |1958 | |4. |Eastern Railway |ER | Kolkata |April, 1952 | |5. |South-Eastern Railway |SER | Kolkata |1955 | |6. |South-Central Railways |SCR | Secunderabad |October 2, 1966 | |7. |Southern Railway |SR | Chennai |April 14, 1951 | |8. Central Railway |CR | Mumbai |November 5, 1951 | |9. |Western Railway |WR | Mumbai |November 5, 1951 | |10. |South-Western Railway |SWR | Hubli |April 1, 2003 | |11. |North-Western Railway |NWR | Jaipur |Oct 1, 2002 | |12. |West Central Railway |WCR | Jabalpur |April 1, 2003 | |13. East Coast |ECoR |Bhubaneswar |April 1, 2003 | |14. |North Central |NCR |Allahabad |April 1, 2003 | |15. |South East Central |SECR |Bilaspur, CG |April 1, 2003 | |16. |East Central |ECR |Hajipur |October 1, 2002 | Recruitment and Training Indian Railways is the largest civilian employer in the world at approximately 1. million employees. 1200 officers form the line and staff management organization. The recruitment of the Officers (Group ‘A’ service) is done through the Indian Engineering Services examination conducted by the Union Public Service Commission (UPSC); and also through the Special Class Railway Apprentices (S. C. R. A. ) exam conducted by UPSC. The recruitment to Group ‘C’ and ‘D’ employees on the Indian Railways is done through 19 RRBs (Railway Recruitment Boards) which are controlled by the Railway Recruitment Control Board (RRCB).

The training of all cadres is entrusted and shared between six centralized training institutes. Subsidiaries Indian Railways manufactures much of its rolling stock and heavy engineering components at its six manufacturing plants, called Production Units, which are managed directly by the ministry. As with most developing economies, the main reason for this was the policy of import substitution of expensive technology related products when the general state of the national engineering industry was immature. Each of these six production units is headed by a General Manager, who also reports directly to the Railway Board.

There exist independent organizations under the control of the Railway Board for electrification, modernization and research and design, each of which is headed by a General Manager. A number of Public Sector Undertakings, which perform railway-related functions ranging from consultancy to ticketing, are also under the administrative control of the Ministry of railways. Technical Details Track Broad gauge is the most predominant gauge used by the Indian railway. The total length of track used by Indian Railways is about 108,805 km (67,608 mi) while the total route length of the network is 63,465 km (39,435 mi).

About 28% of the route-kilometer and 40% of the total track kilometer is electrified. Track sections are rated for speeds ranging from 75 to 160 km/h (47 to 99 mph). Indian railways uses four gauges, the broad gauge which is wider than the 1,435 mm (4 ft 8+1? 2 in) – standard gauge; the meter gauge; and two narrow gauge 762 mm (2 ft 6 in) and 610 mm (2 ft) (narrower than the meter gauge). Indian broad gauge—1,676 mm (5 ft 6 in)—is the most widely used gauge in India with 89,771 km (55,781 mi) of track. In some regions with less traffic, the meter gauge—1,000 mm (3 ft 3+3?  in)—is common, although the Uni-gauge project is in progress to convert all tracks to broad gauge. The Narrow gauges are present on a few routes, lying in hilly terrains and in some erstwhile private railways (on cost considerations), which are usually difficult to convert to broad gauge. Narrow gauges cover a total of 3,350 km (2,080 mi). The Kalka-Shimla Railway, the Nilgiri Mountain Railway and the Darjeeling Himalayan Railway are three notable hill lines that use narrow gauge. In most places sleepers (ties) used are made of prestressed concrete, or steel or cast iron posts, though teak sleepers are still in use on few older lines.

The prestressed concrete sleeper which is in wide use today is based on RDSO Drawing No. RDSO=T-2496. Metal sleepers were also extensively used before the advent of concrete sleepers. Indian Railways divides the country into four zones on the basis of the range of track temperature. The greatest temperature variations occur in Rajasthan, where the difference may exceed 70 °C (158 °F). Services Passenger Indian Railways operates about 9,000 passenger trains and transports 18 million passengers daily across twenty-eight states and one union territory.

Sikkim, Arunachal Pradesh, and Meghalaya are the only states not connected by rail. The passenger division is the most preferred form of long distance transport in most of the country. A standard passenger train consists of eighteen coaches, but some popular trains can have up to 24 coaches. Coaches are designed to accommodate anywhere from 18 to 81 passengers, but during the holiday seasons or when on busy routes, more passengers may travel in a coach. Most regular trains have coaches connected through vestibules. However, ‘unreserved coaches’ are not connected with the rest of the train via any vestibule.

Reservation against cancellation service is a provision for shared berth in case the travel ticket is not confirmed. It is a way of maximizing the number of wait-listed passengers to be accommodated in case of a cancellation. Accommodation classes Several interstate trains feature two to three classes of travel, such as a First and Second class which have different pricing systems for various amenities. The first class can sometimes refer to a separate cabin, or simply a Further, the second class can have two or three tiers, with higher rices for the former, or seat-only class, which are popular on shorter routes. Many interstate trains are partially or fully air conditioned, feature padded leather seats or berths, and provide passengers with sheets, pillows, blankets, as well as meals and refreshments (which must be ordered as a set menu, either vegetarian or non-vegetarian). The amenities depend on the popularity and length of the route. Lavatories are communal and feature both the ‘hole in the ground’ Indian types as well as the ‘Western-style’ commode types. The following table lists the classes in operation.

Not all classes may be attached to a rake though. |Class |Description | |1A |The First class AC: This is the most expensive class, where the fares are on par with airlines. Bedding is included with the | | |fare in IR. This air conditioned coach is present only on popular routes between metropolitan cities and can carry 18 | | |passengers. The coaches are carpeted, have sleeping accommodation and have privacy features like personal coupes. |2A |AC-Two tier: Air conditioned coaches with sleeping berths, ample leg room, curtains and individual reading lamps. Berths are | | |usually arranged in two tiers in bays of six, four across the width of the coach then the gangway then two berths long ways, | | |with curtains provided to give some privacy from those walking up and down. Bedding is included with the fare. A broad gauge | | |coach can carry 48 passengers. | |FC |First class: Same as 1AC, without the air conditioning. This class is not very common. |3A |AC three tier: Air conditioned coaches with sleeping berths. Berths are usually arranged as in 2AC but with three tiers | | |across the width and two long ways as before giving eight bays of eight. They are slightly less well appointed, usually no | | |reading lights or curtained off gangways. Bedding is included with fare. It carries 64 passengers in broad gauge. | |CC |AC chair car: An air-conditioned seater coach with a total of five seats in a row used for day travel between cities. |EC |Executive class chair car: An air-conditioned seater coach with a total of four seats in a row used for day travel between | | |cities. | |SL |Sleeper class: The sleeper class is the most common coach, and usually up to ten coaches could be attached. These are regular| | |sleeping coaches with three berths vertically stacked. In broad gauge, it carries 72 passengers per coach. Railways have | | |modified certain Sleeper Coaches on popular trains to accommodate 81 passengers in place of regular 72 passengers.

This was | | |done in order to facilitate benefits like clear the Passenger rush and simultaneously earn more revenue. But this has got | | |lukewarm response with criticism from the travelers and railways has decided to remove them. | |2S |Seater class: same as AC Chair car, but without the air-conditioning. | |G orUR |General or Unreserved: The cheapest accommodation, with seats made of pressed wood and are rarely cushioned. Although entry | | |into the compartment is guaranteed, a sitting seat is not guaranteed.

Tickets issued are valid on any train on the same route| | |if boarded within 24 hours of buying the ticket. These coaches are usually very crowded. | At the rear of the train is a special compartment known as the guard’s cabin. It is fitted with a transceiver and is where the guard usually gives the all clear signal before the train departs. A standard passenger rake generally has four general compartments, two at the front and two behind, of which one is exclusively for ladies. The exact number varies according to the demand and the route. A luggage compartment can also exist at the front or the back.

In some trains a separate mail compartment is present. In long-distance trains a pantry car is usually included in the centre. Notable trains and achievements There are two UNESCO World Heritage Sites on IR — the Chatrapati Shivaji Terminus and the Mountain railways of India. The latter is not contiguous, but actually consists of three separate railway lines located in different parts of India. The Darjeeling Himalayan Railway, a narrow gauge railway in West Bengal. The Nilgiri Mountain Railway, a metre gauge railway in the Nilgiri Hills in Tamil Nadu. .

The Kalka-Shimla Railway, a narrow gauge railway in the Shivalik mountains in Himachal Pradesh. The Palace on Wheels is a specially designed train, frequently hauled by a steam locomotive, for promoting tourism in Rajasthan. On the same lines, the Maharashtra government introduced the Deccan Odyssey covering various tourist destinations in Maharashtra and Goa, and was followed by the Government of Karnataka which introduced the Golden Chariot train connecting popular tourist destinations in Karnataka and Goa. However, neither of them has been able to enjoy the popular success of the Palace on Wheels.

The Samjhauta Express is a train that runs between India and Pakistan. However, hostilities between the two nations in 2001 saw the line being closed. It was reopened when the hostilities subsided in 2004. Another train connecting Khokhrapar (Pakistan) and Munabao (India) is the Thar Express that restarted operations on February 18, 2006; it was earlier closed down after the 1965 Indo-Pak war. The Kalka Shimla Railway till recently featured in the Guinness Book of World Records for offering the steepest rise in altitude in the space of 96 kilometres.

The Lifeline Express is a special train popularly known as the “Hospital-on-Wheels” which provides healthcare to the rural areas. This train has a carriage that serves as an operating room, a second one which serves as a storeroom and an additional two that serve as a patient ward. The train travels around the country, staying at a location for about two months before moving elsewhere. Among the famous locomotives, the Fairy Queen is the oldest operating locomotive in the world today, though it is operated only for specials between Delhi and Alwar.

John Bull, a locomotive older than Fairy Queen, operated in 1981 commemorating its 150th anniversary. Kharagpur railway station also has the distinction of being the world’s longest railway platform at 1072 m (3,517 ft). The Ghum station along the Darjeeling Toy Train route is the second highest railway station in the world to be reached by a steam locomotive. [21] The Mumbai–Pune Deccan Queen has the oldest running dining car in IR. The Himsagar Express, between Kanyakumari and Jammu Tawi, has the longest run in terms of distance and time on Indian Railways network.

It covers 3,745 km (2,327 miles) in about 74 hours and 55 minutes. The Bhopal Shatabdi Express is the fastest train in India today having a maximum speed of 150 km/h (93. 7 mph) on the Faridabad–Agra section. The fastest speed attained by any train is 184 km/h (114 mph) in 2000 during test runs. The Rajdhani Express and Shatabdi Express are the superfast, fully air-conditioned trains that give the unique opportunity of experiencing Indian Railways at its best. In July 2009, a new non-stop train service called Duronto was announced by the railway minister Mamata Banerjee Fares and Ticketing

Fares on the Indian Railways across categories are among the cheapest in the world. In the past few years, despite a recessionary environment, the Indian Railways have not raised fares on any class of service. On the contrary, there has been a minor dip in fares in some categories. Ticketing services are available at all major and minor railway stations across India. In 2003, Indian Railways launched online ticketing services through the IRCTC website. Apart from E-tickets, passengers can also book I-tickets that are basically regular printed tickets, except that they are booked online and delivered by post.

Tourism IRCTC takes care of the tourism operations of the Indian Railways. The Indian Railways operates several luxury trains such as Palace on Wheels, Golden Chariot, Royal Orient Express and Deccan Odyssey; that cater mostly to foreign tourists. For domestic tourists too, there are several packages available that cover various important tourist and pilgrimage destinations across India. Freight IR carries a huge variety of goods ranging from mineral ores, fertilizers and petrochemicals, agricultural produce, iron & steel, multimodal traffic and others.

Ports and major urban areas have their own dedicated freight lines and yards. Many important freight stops have dedicated platforms and independent lines. Indian Railways makes 70% of its revenues and most of its profits from the freight sector, and uses these profits to cross-subsidise the loss-making passenger sector. However, competition from trucks which offer cheaper rates has seen a decrease in freight traffic in recent years. Since the 1990s, Indian Railways has switched from small consignments to larger container movement which has helped speed up its operations.

Most of its freight earnings come from such rakes carrying bulk goods such as coal, cement, food grains and iron ore. Indian Railways also transports vehicles over long distances. Trucks that carry goods to a particular location are hauled back by trains saving the trucking company on unnecessary fuel expenses. Refrigerated vans are also available in many areas. The “Green Van” is a special type used to transport fresh food and vegetables. Recently Indian Railways introduced the special ‘Container Rajdhani’ or CONRAJ, for high priority freight.

The highest speed notched up for a freight train is 100 kilometres per hour (62 mph) for a 4,700 metric tonne load. Recent changes have sought to boost the earnings from freight. A privatization scheme was introduced recently to improve the performance of freight trains. Companies are being allowed to run their own container trains. The first length of an 11,000-kilometre (6,800 mi) freight corridor linking India’s biggest cities has recently been approved. The railways has increased load limits for the system’s 225,000 freight wagons by 11%, legalizing something that was already happening.

Due to increase in manufacturing transport in India that was augmented by the increase in fuel cost, transportation by rail became advantageous financially. New measures such as speeding up the turnaround times have added some 24% to freight revenues. Dedicated Freight Corridor Ministry of Railways have planned to construct a new Dedicated Freight Corridor (DFC) covering about 2762 route km on two corridors, Eastern Corridor from Ludhiana to Sone Nagar and Western Corridor from Jawahar Lal Nehru Port Mumbai to Tughlakabad/Dadri along with interlinking of two corridors at Khurja.

Upgrading of transportation technology, increase in productivity and reduction in unit transportation cost are the focus areas for the project. “Dedicated Freight Corridor Corporation of India Limited (DFCC)” is a special purpose vehicle created to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. DFCC has been registered as a company under the Companies Act 1956 on 30 October 2006. Rail budget and Finances

The Railway Budget deals with planned infrastructure expenditure on the railways as well as with the operating revenue and expenditure for the upcoming fiscal years, the public elements of which are usually the induction and improvement of existing trains and routes, planned investment in new and existing infrastructure elements, and the tariff for freight and passenger travel. The Parliament discusses the policies and allocations proposed in the budget. The budget needs to be passed by a simple majority in the Lok Sabha (Lower House).

The comments of the Rajya Sabha (Upper House) are non-binding. Indian Railways is subject to the same audit control as other government revenue and expenditures. Based on anticipated traffic and the projected tariff, requirement of resources for capital and revenue expenditure of railways is worked out. While the revenue expenditure is met entirely by railways itself, the shortfall in the capital (plan) expenditure is met partly from borrowings (raised by Indian Railway Finance Corporation) and the rest from Budgetary support from the Central Government.

Indian Railways pays dividend to the Central Government for the capital invested by the Central Government. As per the Separation Convention (on the recommendations of the Acworth Committee), 1924, the Railway Budget is presented to the Parliament by the Union Railway Minister, two days prior to the General Budget, usually around 26 February. Though the Railway Budget is separately presented to the Parliament, the figures relating to the receipt and expenditure of the Railways are also shown in the General Budget, since they are a part and parcel of the total receipts and expenditure of the Government of India.

This document serves as a balance sheet of operations of the Railways during the previous year and lists out plans for expansion for the current year. The formation of policy and overall control of the railways is vested in Railway Board, comprising the Chairman, the Financial Commissioner and other functional members of Traffic, Engineering, Mechanical, Electrical and Staff departments. Indian Railways, which a few years ago was operating at a loss, has, in recent years, been generating positive cash flows and been meeting its dividend obligations to the government.

The railway reported a cash surplus of INR 9000 cr in 2005, INR 14000 cr in 2006, INR 20,000 cr in 2007 and INR 25,000 cr for the 2007-2008 fiscal year. Its operating ratio improved to 76% while, in the last four years, its plan size increased from INR 13,000 cr to INR 30,000 cr. The proposed investment for the 2008-2009 fiscal year is INR 37,500 cr, 21% more than for the previous fiscal year. Budget Estimates-2008 for Freight, Passenger, Sundry other Earnings and other Coaching Earnings have been kept at INR 52,700 cr, INR 21,681 cr, INR 5,000 cr and INR 2,420 cr respectively.

Maintaining an overall double digit growth, Gross Traffic Earnings have been projected as INR 93,159 crore in 2009-10 (19. 1 billion USD at current rate), exceeding the revised estimates for the current fiscal by INR 10,766 crore. Around 20% of the passenger revenue is earned from the upper class segments of the passenger segment (the air-conditioned classes). On 3 July 2009 Railway Minister Mamata Banerjee presented the Railway Budget 2009-2010, which included many improvements Current issues and upgrades

Although accidents such as derailment and collisions are less common in recent times, many are run over by trains, especially in crowded areas. Indian Railways have accepted the fact that given the size of operations, eliminating accidents is an unrealistic goal, and at best they can only minimize the accident rate. Human error is the primary cause, leading to 83% of all train accidents in India. In the past, the Konkan Railway route has suffered from landslides in the monsoon season, causing fatal accidents.

Outdated communication, safety and signaling equipment, which used to contribute to failures in the system, is being updated with the latest technology. A number of train accidents happened on account of a system of manual signals between stations, so automated signaling is getting a boost at considerable expense. It is felt that this would be required given the gradual increase in train speeds and lengths, that would tend to make accidents more dangerous.

In the latest instances of signaling control by means of interlinked stations, failure-detection circuits are provided for each track circuit and signal circuit with notification to the signal control centres in case of problems. Though currently available only in a small subset of the overall IR system, anti-collision devices are to be extended to the entire system. Aging colonial-era bridges and century-old tracks also require regular maintenance and upgrading. In recent years Indian Railways has turned profitable again, with (unaudited) operating profits going up substantially.

The Sixth Pay Commission has been constituted in India to review the pay structure of Government employees, and its recommendations are expected by the end of 2008. Based on its recommendations, the salaries of all Railways officers and staff are expected to be revised with retrospective effect (w. e. f. January 1, 2006). If previous Pay Commissions are taken as an indicator, this revision could be 50%, thus having an impact on present and future Railway budgets.

The Rajdhani Express and Shatabadi Express are the fastest trains of Indian Railways, though they face competition from low-cost airlines since they run at a maximum speed of only 150 kilometres per hour (93 mph). At least five corridors are under consideration for the introduction of high speed bullet trains to India with expert assistance from France. It is estimated that to modernise Indian Rail and bring it up to international standards, would require over US$200 billion in new and upgrade investments.

IR is in the process of upgrading stations, coaches, tracks, services, safety, and security, and streamlining it’s various software management systems including crew scheduling, freight,and passenger ticketing. Crew members will be able to log in using biometric scanners at kiosks while passengers can avail themselves of online booking. Initially, various upgrade and overhaul work will be performed at more than five hundred stations, some of it by private contract.

All metre gauge lines in the country will be converted to broad gauge (see Project Unigauge). New LHB(Alstom) stainless steel coaches, manufactured in India, have been installed in Premier Rajdhanis and Shatabdis like Howrah Rajdhanis, Sealdah Rajdhanis, Mumbai Rajdhanis, August Kranti Rajdhanis, Patna Rajdhanis, Guwahati Rajdhanis and Bhuwaneshwar Rajdhanis. These coaches enhance the safety and riding comfort of passengers besides having more carrying capacity, and in time will replace thousands of old model coaches throughout Indian Railways.

More durable and conforming polyurethane paint is now being used to enhance the quality of rakes and significantly reduce the cost of repainting. Improved ventilation and illumination are part of the new scheme of things, along with the decision to install air brake systems on all coaches. New manufacturing units are being set up to produce state-of-the-art locomotives and coaches. IR is also expanding its telemedicine network facilities to further give its employees in far-flung and remote areas access to specialized medicine.

IR has also piloted Internet connectivity on the Mumbai-Ahmedabad Shatabdi Express , powered by Techno Sat Communications Sanitation in trains and stations throughout the system is getting more attention with the introduction of eco-friendly, discharge-free, green (or bio-) toilets developed by IIT Kanpur. Updated eco-friendly refrigerant is being used in AC systems while fire detection systems will be installed on trains in a phased manner. New rodent-control and cleanliness procedures are working their way into the many zones of IR.

Central Railway’s ‘Operation Saturday’ is gradually making progress, station by station, in the cleanup of its Mumbai division. Reforms The numbers of coaches on each train were increased to 24, from 16, which increased costs by 28% but increased revenues by 78%. The railways were permitted to carry 68 tons per wagon, up from the earlier limit of 54 tons per wagon, thereby cutting costs. The turnaround time for freight wagons was reduced from 7 days to 5 by operating the goods shed 24-7, electrifying every feeder line (this reduced time spent switching the engine from diesel to electric or from electric to diesel).

Reducing the turnaround time meant that the Railways could now load 800 trains daily, instead of 550 trains daily. The minimum tonnage requirements were reduced allowing companies to unload their cargo at multiple stops. MONOPOLY In economics, a monopoly (from the Latin word monopolium – Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

Monopoly should be distinguished from monopoly, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly). Primary characteristics of a monopoly • Single Sellers

A pure monopoly is an industry in which a single firm is the sole producer of a good or the sole provider of a service. This is usually caused by barriers to entry. • No Close Substitutes The product or service is unique in ways which go beyond brand identity, and cannot be easily replaced (a monopoly on water from a certain spring, sold under a certain brand name, is not a true monopoly; neither is Coca-Cola, even though it is differentiated from its competition in flavor). • Price Maker

In a pure monopoly a single firm controls the total supply of the whole industry and is able to exert a significant degree of control over the price, by changing the quantity supplied (an example of this would be the situation of Viagra before competing drugs emerged). In subtotal monopolies (for example diamonds or petroleum at present) a single organization controls enough of the supply that even if it limits the quantity, or raises prices, the other suppliers will be unable to make up the difference and take significant amounts of market share. • Blocked Entry

The reason a pure monopolist has no competitors is that certain barriers keep would-be competitors from entering the market. Depending upon the form of the monopoly these barriers can be economic, technological, legal (e. g. copyrights, patents), violent (competing businesses are shut down by force), or of some other type of barrier that completely prevents other firms from entering the market. Price setting for Unregulated Monopolies [pic]AR In economics a company is said to have monopoly power if it faces a downward sloping demand curve (see supply and demand).

This is in contrast to a price taker that faces a horizontal demand curve. A price taker cannot choose the price that they sell at, since if they set it above the equilibrium price, they will sell none, and if they set it below the equilibrium price, they will have an infinite number of buyers (and be making less money than they could if they sold at the equilibrium price). In contrast, a business with monopoly power can choose the price they want to sell at. If they set it higher, they sell less.

If they set it lower, they sell more. In most real markets with claims, falling demand associated with a price increase is due partly to losing customers to other sellers and partly to customers who are no longer willing or able to buy the product. In a pure monopoly market, only the latter effect is at work, and so, particularly for inflexible commodities such as medical care, the drop in units sold as prices rise may be much less dramatic than one might expect.

If a monopoly can only set one price it will set it where marginal cost (MC) equals marginal revenue (MR) as seen on the diagram on the right. This can be seen on a big supply and demand diagram for many criticism of monopoly. This will be at the quantity Qm; and at the price Pm. This is above the competitive price of Pc and with a smaller quantity than the competitive quantity of Qc. The offensive monopoly gains is the shaded in area labeled profit (note that this diagram looks only at the case where there is no fixed cost.

If there were a fixed cost, the average cost curve should be used instead). As long as the price elasticity of demand (in absolute value) for most customers is less than one, it is very advantageous to increase the price: the seller gets more money for less goods. With an increase of the price, the price elasticity tends to rise, and in the optimum mentioned above it will be above one for most customers. A formula gives the relation between price, marginal cost of production and demand elasticity which maximizes a monopoly profit:  (known as Lerner index).

The monopolist’s monopoly power is given by the vertical distance between the point where the marginal cost curve (MC) intersects with the marginal revenue curve (MR) and the demand curve. The longer the vertical distance, (the more inelastic the demand curve) the bigger the monopoly power, and thus larger profits. The economy as a whole loses out when monopoly power is used in this way, since the extra profit earned by the firm will be smaller than the loss in consumer surplus. This difference is known as a deadweight loss.

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