A monopoly is a market structure in which a single seller or producer dominates the entire market for a particular good or service, and it is characterized by limited competition
We go over the nine existing monopoly characteristics on this page. A monopoly is a particular kind of market structure when all production and sales of a certain good or service within a market are controlled by one supplier.
In economics, the study of market systems revolves around the idea of monopolies. The word comes from the Greek words “polein,” which means to sell, and “monos,” which means single. A number of factors, such as strong entry barriers, control of vital resources, governmental rules, or technological supremacy, can lead to monopolies.
Video: What is a monopoly?
Here are NINE Characteristics of Monopoly:
- Single Seller or Producer:
- In a monopoly, there is only one firm or entity that controls the entire supply of a particular product or service.
- No Close Substitutes:
- The monopoly firm produces a unique product or service for which there are no close substitutes available in the market. Consumers do not have alternative options that are considered comparable.
- Price Maker:
- The monopolist has the power to set the price of its product or service because there are no competing firms to influence market prices. The firm can determine the price at which it maximizes its profits.
- High Barriers to Entry:
- Barriers to entry are obstacles that make it difficult for new firms to enter the market and compete with the existing monopoly. These barriers can include high startup costs, control over essential resources, legal barriers, and economies of scale.
- Unique Resource Control:
- Monopolies often arise when a single firm has exclusive control over a key resource or technology necessary for producing a particular good or service. This control reinforces the barriers to entry.
- Economies of Scale:
- Monopolies often benefit from economies of scale, meaning that the average cost of production decreases as the quantity of output increases. This can make it more difficult for smaller firms to compete on cost.
- Persistent Supernormal Profits:
- Monopolies can earn long-term supernormal profits (profits higher than the competitive level) because they face little or no competition. This allows the monopolist to sustain economic profits over an extended period.
- Restricted Output:
- Due to the lack of competition, monopolies may choose to produce less output than would occur under competitive conditions. This can lead to an allocation of resources that is not socially optimal.
- Lack of Consumer Sovereignty:
- Consumers in a monopoly have limited choices and may not have the same influence over the market as they would in a competitive market. The monopolist’s decisions, including pricing and product offerings, are not determined by consumer preferences to the same extent as in competitive markets.