Sharing Microeconomic Insights with Non-Specialist Audiences Assignment

Sharing Microeconomic Insights with Non-Specialist Audiences - Assignment Example On 26th February 2013 the New York Times presented an article titled, ‘Are We in Danger of a Beer Monopoly?’ From the article, it’s possible to learn more about formation, pricing, regulation and operation of monopolies. Most companies are established with the primary aim being to maximize profit. A monopoly is a profit maximizer, to do this they reduce supply of the products, and this raises the prices of the scarce products. For firm’s that operate near monopoly condition they enjoy economies of scale that enable them set their prices profitably, and they can control the prices of other smaller companies. In 1988 when Miller and Coors reduced their beer prices AB InBev also reduced the prices of its beer forcing Miller and Coors to abandon their price cut. This shows the firm’s dominance in this industry and all firms have to pay attention to this market leader. This further indicates AB InBev intention to scare away the small existing firms and hence force them to exit this industry. AB InBev has the powers to set its prices if the competitors reduce their prices it also reduces its prices to ensure it competes efficient. AB InBev aims to acquire Grupo Modelo’s Corona since it hinders it from setting high prices. The acquisition was it to happen will hence give AB InBev the powers to raise its price as it wishes and hence operate under monopoly conditions. AB InBev will hence be a price setter. There are different ways that a company can gain monopoly power. First is by government regulations prohibiting entrance of other firms in that industry, they can result from controlling a significant resource. Monopolies may also arise from economies of scale, availability of production technology and capital or mergers and acquisition. In this case AB InBev was developed on the concept of technological innovation and managerial efficiency. Since its establishment in 1999 the company has