Answer to Question #88318 in Microeconomics for Matthew

Question

Name and define in detail the type of market structure Eskom is operating as?

Answer 1

Eskom operate is a monopoly since it is the sole supplier of electricity to residential, mining and industrial premises in South Africa. A monopoly market structure is a market where there is only one supplier who controls significant resources limiting the chances for the entry of new firms. Furthermore, a monopolistic firm is the price-maker indicating the lack of price competition, therefore increasing the chances for the firm to make supernormal profit.

Eskom Holdings is a public (state-owned) utility that has interests in generation, transportation and distribution of electricity (Public Enterprise, 2019). Based on this, Eskom is able to supply 95% of the electricity used in South Africa due to its ability to access significant resources limiting the chances for entry of other companies into the sector (Public Enterprise, 2019). As a monopoly, Eskom can independently determine the pricing and this has led to the formation of National Energy Regulator of South Africa (NERSA) to help in regulation of prices and other operations to protect consumers from oppression.  

Reference

Public Enterprise (2019). State Owned Companies: Overview of Eskom. Retrieved from: https://www.dpe.gov.za/soc/Pages/Eskom.aspx. Access on 19^th April 2019.