Tenaga Nasional Berhad (TNB) plays Monopoly in
Malaysia?
Tenaga Nasional Berhad (TNB) is the only firm
in Malaysia, which supplies electricity to individuals as well as households.
This firm is the only electricity supplier that exists in Malaysia. This proves
that TNB is a monopoly business in
the industry.
One of the reason why, is because a company
requires to invest a huge amount of money in order to become an electric supplier. A huge
capital is needed mainly for the start-up of power plants with high electric
capacity of megawatts.
Manjung Coal
Power Plant
Power Plant
Hydroelectric in Sabah
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Do you ever think why TNB is the only electric supplier?
And do you ever wonder why other companies that would like to start an
electricity supplying business, couldn't achieve their goal even thou they have
more capital than TNB? All of these are because there are several barriers that
prevent them from doing so. One of the barriers would be the legal barrier to
entry of patents or/and licenses own by TNB. As a result, TNB have gotten the
license of operating the business. In this way, TNB will be the only firm to
supply electricity in order to maintain a healthy market.
Furthermore, new firms will also be blocked by
the barrier of government directive from entering into certain industries.
However, the authorities provide special treatment for monopoly companies. The
government imposed a regulation where the possibility of other new firms to
enter the industry are likely impossible or very difficult. With the government
in its side, this sets TNB as the only legal electricity supplier in the
country.
Apart from that, there is another barrier that
prevent the new firms from entering the industry to compete with TNB, TNB has
then ownership for scarce raw materials. This inhibits other firms from
undergoing work using the same limited inputs. Therefore, the single firm, TNB,
is able to control the industry comprehensively as it owns the entire supply
required for production. To prove this, TNB has access to the cheapest raw
material, which is coal used to generate electricity in Malaysia.
In addition,
production cost of electricity will conclusively increase if there were more
competition in the industry. In assumption that there are oppositions; it would
definitely contribute to higher price of resources, such as coal. Due to the
reason that coal is a scarce raw material, coal suppliers would likely sell coal
at a higher price and to the highest bidder. This will increase both production
cost and cost of product, electricity.
Based on the graph where production at the
Marginal Revenue (MR) = Marginal Cost (MC) output. In order for the firm to
obtain maximum profit, the price must be set at the point where it touches the
demand curve and must be above the Average Total Cost (ATC). As a result, TNB
will be able to gain supernormal profit if it remains as the monopoly firm in
the industry.
TNB as a
monopoly company is also a price maker because this one and only company
controls the whole industry. Where it is able to determine the prices, either
to be maintained, rise or fall in the future.
In conclusion, with everything in its favor, TNB is not wary to any competition. Inasmuch as the evidence I composed, it is unlikely for any competitors to appear.
TNB HOMEPAGE
Written by
Danny Chow 0315607
Good Explanation!!!
ReplyDeleteAlthough your comment is quite short but it is appreciated. Thank you so much.
DeleteNice post~!
ReplyDeleteCan you give me another example of monopoly?
Teddy Bee, there are few examples of monopoly in this country. One of the examples will be SYABAS. This firm is the only firm which has the ownership of water resources as scarce of raw material. Therefore, it is the only firm which has the capability to provide water resources to the citizens in Malaysia. As you can see in this digital age, there is no other firm else that could enter this industry and do this business. This cause SYABAS become the price maker. As a result, SYABAS can control the price of water resources whether to reduce, to maintain, or to increase in the future. I hope this example could give you more knowledge about monopoly.
DeleteVery clear explanation..! I'm satisfied for your answer provided. Thanks!
DeleteWow.. Thanks for the example! Your example let me know more about the monopoly in our country. Besides, your article has clearly explained all about monopoly. I'm completely master in this chapter because of your article. Thanks a lot!!!
ReplyDeleteYou're welcome. Thank you for having the time to read our blog.
DeleteI would like to ask, if TNB is price maker, can they set the price as high as they desired?
ReplyDeleteJing Wei, although the TNB as the monopoly has the absolute right to determine the prices level, it is also need to set the prices based on the effect through demand of consumers that caused by the supply of itself. For instance, TNB will set the price of electricity to be reasonable and affordable based on the consumers' financial's ability to consume about electricity. This is due to the reason that the products that produced by TNB is a essential requirement for people to live in order to maintain their quality of life; therefore, the price of such product surely cannot be too high or unreasonable. If the price of electricity too high because of TNB's desire to gain more profit, it will lead to surplus in this industry.
DeleteThis post gave me a lot of information about how TNB operate as monopoly. I become more knowledgeable about the monopoly market structure instead of just studying in the text book. But one thing I would like to confirm how do the production cost remain constant? I mean, this is because it includes scarce raw materials which are hard to get and high in price. What will be the effect of product price if price for production cost such as raw material increase?
ReplyDeleteHello, JYChua. I honestly appreciate your comment. Please let me seize this opportunity to give you a proper explanation.
DeleteThe price of scarce raw material will be stable when there is only one firm exist which has the ownership of that particular raw material. Scarce resources will decrease in time, the production cost of making the product will definitely increase. Hence, will cause the price of the product to increase also. However, as there is only one existing firm that has total control and the ownership over the scarce material, the price of scarce raw materials will remain stable.
Therefore, if there is a new firm that successfully enters the industry and want to own that particular scarce raw of material, this will cause the price of that raw material to increase. This is because, the suppliers of that particular raw material would likely sell the material at a higher price and to the highest bidder such as coal as mentioned in this post. Hence, price of the product which produced by that particular material as input will become higher. I hope this can help.
Do you think that it is effective that there is oblue one firm exist in the market?
ReplyDeleteYes, in my opinion, it is very important for the country to only have one electric supplier company. This is to avoid any problems or insufficient with our scarce raw materials.
DeleteOther than that, if there were more electric supplier firms, the price for electric might go up. As suppliers of raw materials must tend to sell their materials with a higher price and to the highest bidder (like said in the post).
I think it is much better to just have only one firm in the industry. This is in order for the community to remain happy with the price and productivity of our electric supplier, TNB.
I hope this would help answer your question. Thank you.