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Market Structure

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According to Cho and Pucik (2011), natural monopoly is defined as a monopoly that exists in the circumstances of very high fixed or start-up costs of operations or services (with the lowest Long Run Average cost), such that usually involve only the largest supplier. The start-ups costs of operations are so high or  capital intensive that the barrier’s entry is very troublesome. In the long run, such a single supplier earns profits through the economy of scales. Usually such single supplier is the government who own public utility services like electricity, water supply, education.

Europe has nationalized all educational services and in that sense has a natural monopoly in this sector. It leaves no room for private investments as the costs of education are highly subsidized. Even if the operational costs are very high or the educational institution runs a loss in any sector, the government will try immediately to bail the institution out by funding it. It obviously influences on the tax payers then. Still the educational system in Europe is subsidized largely. What the government has tried to do is to create a monopoly in this sector, with the aim higher education, university level will be available for all (the masses). The ordinary people will have no issues considering quality education. The government wanted to be egalitarian. It supports the idea of impartial entrance to Oxford University. No matter how rich a person is, he cannot bribe his way to Oxford University.

Soberman and Gatignon (2011) Merck is one of the seventh largest pharmaceutical companies in the world with 94 000 employees (2010) and over 31 factories worldwide in more than 120 countries. Merck was started as a privately owned company which was confiscated by the US Government during the World War I, and then later was established as an independent company. As it has been functioning independently, it has the liberty to make independent decisions that have led to the stupendous growth of the company. In fact, the US Company Merck is even bigger than its German ancestor. After it became independent, it went ahead and acquired Charles E. Frosst Canada Inc. The company was merged with Schering Plough. Due to its merger and acquisition, it achieved success providing better service to its consumer based in terms of improved technology, R & D facilities, improved delivery points, etc. It is a public owned company that it is listed on the stock exchange. Such companies turn to become monopolies considering their share of the market.

Robone and Zanardi (2010) note that Merck is one of the largest manufacturers and suppliers of pharmacy products.  Any company that plan to compete with it has to have the best infrastructure, the best R & D Labs and technology and at the same most efficient logistics and delivery points. The company has a large customer base. Any company intending to reach them will have to invest a lot and also compete with them in terms of quality and technology. Merck gets profit because of economies of scale, its long standing credibility and market share in the market.

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