Wednesday, 10 July 2013

Is National Electricity Board (TNB) Malaysia a monopoly ?

Yes. The National Electricity Board (TNB) Malaysia is a monopoly. This is due to TNB possess some characteristic that shows that it is a monopoly market. 

First of all, TNB is the only firm in Malaysia that supply electricity to people, TNB do not have any competitors in the market. It provides unique services instead of the homogeneous products. Thus, it means there is no substitutes for TNB.

Apart from that, TNB is a price maker that has ability to raise the price without losing demand of people to consume the electricity. It has to 'market power' that can control over the price, unlike the perfect competition. Thus, they use the profit-maximization strategy which is the level that marginal revenue equals to marginal cost, it is also the equilibrium output. It can be shown at the graph below.

















TNB also earns a supernormal profit no matter in the short-run or long-run. This is because TNB is a monopoly and it has high barriers to entry to restrict the entry of competitors. One of the barriers of entry is patents or licensing. There is only one firm in the market supply electricity which is TNB because it has the illegal lisence given by the government. Therefore, there is no other competitors could come in the market and compete with TNB and they can earn a supernormal profit in the long-run. 

written by : Kwong Shu Zen 0315596
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