MONOPOLY WPS Office

MONOPOLY
The monopoly has been derived from the combination of two words. "Mono" and "poly" mono refers to
single and poly to control. In this wa, Monopoly refers ro a market situation in witch there is only one
seller of a commodity.
-A monopoly is a market structure where a single seller or producer assumes a dominant position in an
industry or a sector. Monopolies are discouraged in free-market economies as they stifle competition
and limit substitutes for consumers.A monopoly is an enterprise that is the only seller of a good or
service. In the absence of government intervention, a monopoly is free to set any price it chooses and
will usually set the price that yields the largest possible profit.
-A monopoly is a market structure that consists of only one seller or producer.
-A monopoly limits available substitutes for its product and creates barriers for competitors to enter the
marketplace.
-Monopolies can lead to unfair consumer practices.
Types of Monopolies
The Pure Monopoly
A pure monopoly is a single seller in a market or sector with high barriers to entry such as significant
startup costs whose product has no substitutes.
Monopolistic Competition
Multiple sellers in an industry sector with similar substitutes are defined as having monopolistic
competition. Barriers to entry are low, and the competing companies differentiate themselves through
pricing and marketing efforts.
The Natural Monopoly
A natural monopoly develops in reliance on unique raw materials, technology, or specialization.

Companies that have patents or extensive research and development costs such as pharmaceutical
companies are considered natural monopolies.
Public Monopolies
Public monopolies provide essential services and goods, such as the utility industry as only one company
commonly supplies energy or water to a region. The monopoly is allowed and heavily regulated by
government municipalities and rates and rate increases are controlled.
Pros and Cons of a Monopoly

Without competition, monopolies can set prices and keep pricing consistent and reliable for consumers.
Monopolies enjoy economies of scale, often able to produce mass quantities at lower costs per unit.
Standing alone as a monopoly allows a company to securely invest in innovation without fear of
competition.
Regulation of a Monopoly
Antitrust laws and regulations are in place to discourage monopolistic operations, protect consumers,
and ensure an open market.
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Characteristics of Monopolistic Markets
In a competitive market, numerous companies are present in the market and supply identical products.
Its demand curve is flat, whereas, in a monopolistic market, the demand curve is downward sloping.
Companies that are operating in a competitive market can sell any desired quantity at the market price.
The following are the characteristics of a monopolistic market:
1. Single supplier
A monopolistic market is regulated by a single supplier. Hence, the market demand for a product or
service is the demand for the product or service provided by the firm.
2. Barriers to entry and exit
Government licenses, patents, and copyrights, resource ownership, decreasing total average costs, and
significant startup costs are some of the barriers to entry in a monopolistic market.
When one supplier controls the production and supply of a certain product or service, other companies
are unable to enter the monopolistic market. If the government believes that the product or service
provided by the monopoly is necessary for the welfare of the public, the company may not be allowed
to exit the market.
Generally, public utility companies – such as electricity companies and telephone companies – may be
prevented from exiting the respective market.
3. Profit maximizer
In a monopolistic market, the company maximizes profits. It can set prices higher than they would’ve
been in a competitive market and earn higher profits. Due to the absence of competition, the prices set
by the monopoly will be the market price.
4. Unique product
In a monopolistic market, the product or service provided by the company is unique. There are no close
substitutes available in the market.
5. Price discrimination
A company that is operating in a monopolistic market can change the price and quantity of the product
or service. Price discrimination occurs when the company sells the same product to different buyers at
different prices.
Considering that the market is elastic, the company will sell a higher quantity of the product if the price
is low and will sell a lesser quantity if the price is high.
Causes of the Emergence of Monopolistic Markets
-A monopolistic market comes into existence because of the following reasons:
1) A company controls a key natural resource and may restrict the resource supply to other companies.
Thus, it controls the final price in the market.
2) The company is given the right by the government for the exclusive production of a product or
service.
3)The increasing returns to scale may lead to one supplier becoming more efficient than the others. This
results in a natural monopoly.
4)The absence of a substitute product or service; hence low demand elasticity allows a company to
charge prices higher than the marginal cost
5) Technological advantages and innovation may sometimes result in monopolistic markets.
6) Legal barriers comprising copyrights, licenses, patents
The government can regulate a monopolistic market through the following:
1) Limiting price increases
2) Merger regulation
3) Separating monopolies
4) Investigating unfair practices and cartels

5) Ownership by the government – nationalization of the firm
Examples of a Type of Monopoly?
Natural gas, electricity companies, and other utility companies are examples of natural monopolies.
They exist as monopolies because the cost to enter the industry is high and new entrants are unable to
provide the same services at lower prices and in quantities comparable to the existing firm.
Public utilities: gas, electric, water, cable TV, and local telephone service companies, are often pure
monopolies. 2. First Data Resources (Western Union), Wham-O (Frisbees), and the DeBeers diamond
syndicate are examples of "near" monopolies.

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MONOPOLY

-A monopoly is a market structure that consists of only one seller or producer.

-Monopolies can lead to unfair consumer practices.

The Pure Monopoly

The Natural Monopoly

A natural monopoly develops in reliance on unique raw materials, technology, or specialization.

Pros and Cons of a Monopoly

Characteristics of Monopolistic Markets

The following are the characteristics of a monopolistic market:

2. Barriers to entry and exit

Causes of the Emergence of Monopolistic Markets

-A monopolistic market comes into existence because of the following reasons:

5) Technological advantages and innovation may sometimes result in monopolistic markets.

6) Legal barriers comprising copyrights, licenses, patents

The government can regulate a monopolistic market through the following:

1) Limiting price increases

4) Investigating unfair practices and cartels

Examples of a Type of Monopoly?

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