Question

Each of the following firms possesses market power. Explain its source. a. Merck, the producer of the patented cholesterollowering drug Zetia b. WaterWorks, a provider of piped water c. Chiquita, a supplier of bananas and owner of most banana plantations d. The Walt Disney Company, the creators of Mickey Mouse

Short answer

Answer: Merck's market power comes from holding a patent on its drug Zetia, giving them a monopoly over this specific drug. WaterWorks' market power arises from being a natural monopoly in the piped water market due to high barriers to entry and infrastructure costs. Chiquita's market power is a result of its control over significant portions of banana production resources and owning most banana plantations. The Walt Disney Company's market power comes from its intellectual property rights, strong brand loyalty, and vertical integration through owning its distribution channels.

Step-by-step solution

Understanding Merck's Market Power in the Pharmaceutical Industry

Merck is the producer of the patented cholesterollowering drug Zetia. The pharmaceutical industry is known for having high barriers to entry due to expensive research and development processes and strict regulations. In this case, Merck holds a patent on its drug Zetia, meaning no other company can produce or sell Zetia during the patent's period. This gives Merck a monopoly over this specific drug and the ability to control its price, resulting in market power for Merck.

Understanding WaterWorks' Market Power in the Piped Water Market

WaterWorks is a provider of piped water, a utility that is typically heavily regulated and subject to high barriers to entry due to the extensive infrastructure required. The company's market power arises from being able to provide a necessary service for the public, with limited or no competition. In many cases, companies like WaterWorks become natural monopolies due to the significantly high costs associated with creating competing infrastructure, allowing them to control the price of piped water.

Understanding Chiquita's Market Power in the Banana Industry

Chiquita is a banana supplier and owner of most banana plantations. The firm's market power can be attributed to its control over a significant portion of the entire industry's production resources. By owning the majority of banana plantations, Chiquita effectively controls the supply of bananas and can influence the market price. Its market power can also be attributed to the fact that bananas are a unique product, which could require specific conditions, licenses, and expertise to grow, resulting in further barriers to entry.

Understanding The Walt Disney Company's Market Power in the Entertainment Industry

Walt Disney Company, the creators of Mickey Mouse, possesses market power in the entertainment industry due to several factors. Firstly, Disney owns the intellectual property rights to their characters, including Mickey Mouse, which prevents other companies from using these characters in any form. Furthermore, Disney has a long-standing reputation for producing high-quality content, leading to strong brand loyalty. Lastly, the firm also utilizes vertical integration by owning its own distribution channels (such as Disney+), giving them additional control over their products. Combined, these factors enable Disney to control the prices and availability of their content, granting them significant market power. By analyzing the unique circumstances and factors surrounding each firm's industry, we can see the basis of each company's market power, which allows them to control prices and avoid competitive pressures.