Monopoly

Restrictive market structures
Number One Few
Sellers Monopoly Oligopoly
Buyers Monopsony Oligopsony

A monopoly (from Greek μόνος, mónos, 'single, alone' and πωλεῖν, pōleîn, 'to sell'), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a specific person or enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market.[1] Monopolies are thus characterised by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit.[2] The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with a decrease in social surplus.[3] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[3]

A monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in which one or a few entities have market power and therefore interact with their customers (monopoly or oligopoly), or suppliers (monopsony) in ways that distort the market.[citation needed]

Monopolies can be formed by mergers and integrations, form naturally, or be established by a government. In many jurisdictions, competition laws restrict monopolies due to government concerns over potential adverse effects. Holding a dominant position or a monopoly in a market is often not illegal in itself; however, certain categories of behavior can be considered abusive and therefore incur legal sanctions when business is dominant. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly, for example with a state-owned company.[citation needed]

Monopolies may be naturally occurring due to limited competition because the industry is resource intensive and requires substantial costs to operate (e.g., certain railroad systems).[4]

  1. ^ Milton Friedman (February 2002) [1962]. "VIII: Monopoly and the Social Responsibility of Business and Labor". Capitalism and Freedom (paperback) (40th anniversary ed.). The University of Chicago Press. p. 208. ISBN 0-226-26421-1.
  2. ^ Blinder, Alan S; Baumol, William J; Gale, Colton L (June 2001). "11: Monopoly". Microeconomics: Principles and Policy (paperback). Thomson South-Western. p. 212. ISBN 0-324-22115-0. A pure monopoly is an industry in which there is only one supplier of a product for which there are no close substitutes and in which is very difficult or impossible for another firm to coexist
  3. ^ a b Orbach, Barak; Campbell, Grace (2012). "The Antitrust Curse of Bigness". Southern California Law Review. SSRN 1856553.
  4. ^ OECD (1997). "Railways: Structure, Regulation and Competition" (PDF). Policy Roundtables: 7. Retrieved 20 April 2022.

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