MONOPOLY

What is monopoly?

 “Monopoly is made of two words—’Mono’ and

‘Poly’. ‘Mono’ means single and ‘Poly’ means seller.
Thus, monopoly is a firm that is the sole producer
of a good or services in the `relevant market. For
instance, most local utility companies are the sole
providers of electricity and natural gas in a given
city. Some towns have a single gasoline station or
movie theater that serves the entire local market.
All of these constitute local monopolies.
 When there is a single provider of a good or
services in a market, there is tendency for the
seller to capitalize on the monopoly position by
restricting output and charging a price above
marginal cost. Because there are no other firms
in the market , consumers cannot switch to
another producer in the face of higher prices.
Consequently , consumers either buy some of
the product at the higher price or go without
it. In monopolistic markets, there is extreme
concentration and the Rothschild index is unity.
 Monopoly , a market structure characterized by a
single seller dominating the industry , has
significant implications for market dynamics and
economics outcomes.
CHARACTERISTICS OF MONOPOLY
1. SINGLE SELLER - In a monopoly, there is only one
firm controlling the entire market resulting in a
lack of direct competition.
2. UNIQUE PRODUCT – Monopolist often offer a
unique product or service, giving them exclusive
control over the market demand for that
particular good.
One common example of monopoly is the
local utility company that provides essential
services such as electricity or water in a
specific geographic area. In many regions ,
these utility companies are granted exclusive
rights by a government to operate in a
particular area, creating a monopoly for that
service. Consumers typically do not have the
option to choose an alternative provider for
this essential utilities, leading to a single
company having control over the entire
market in that specific locality.
Monopoly
 Themonopolist is the supply-side of
the market and has complete control
over the amount offered for sale
 Monopolistcontrols price but must
consider consumer demand
Monopoly
1.One seller – many buyers
2.One product (no close
substitute)
 eg. Public utilities –
Electricity
3.Barriers to entry
4.Price maker
 Kinds of Monopoly:
 Monopoly is of following kinds:
 1.
Simple Monopoly and Discriminating
Monopoly:
A simple monopoly firm charges a uniform
price for its output sold to all the buyers.
While a discriminating monopoly firm
charges different prices for the same
product to different buyers. A simple
monopoly operates in a single market a
discriminating monopoly operates in more
than one market.
2. Pure Monopoly and Imperfect
Monopoly:
 Pure monopoly is that type of monopoly in which a single
firm which controls the supply of a commodity which has
no substitutes not even a remote one. It possesses an
absolute Monopoly power. Such a Monopoly is very rare.
While imperfect monopoly means a limited degree of
Monopoly. It refers to a single firm which produces a
commodity having no close substitutes. The degree of
Monopoly is less than perfect in this case and it relates to
the availability of the closeness of a substitute. In
practice, there are many cases of such imperfect
monopoly.
 3. Natural Monopoly:
 When a Monopoly is established due to natural causes then it is called natural
monopoly. To-day India has got Monopoly in mica production and Canada has
got Monopoly in nickel production. These Monopoly natures has provided to
these countries.
 4. Legal Monopoly:
 When anybody receives or acquires Monopoly due to legal provisions in the
country.
 For Example:
 When legal monopolies emerge on account of legal provisions like patents,
trade-marks, copyrights etc. The law forbids the potential competitors to
imitate the design and form of products registered under the given brand
names, patent or trade-marks. This is done to safeguard the interests of
those who have done much research and undertaken risks of innovating a
particular product.
5. Industrial Monopolies or Public Monopolies:
In the general interest of the nation, when a
government nationalizes certain industries in the
public sector, whereby industrial or public monopolies
are created. The Industrial Policy Resolution 1956, in
India, for instance, categorically lays down that
certain fields like arms and ammunition, atomic
energy, railways and air transport will be the sole
monopoly of the Central Government. In this way
industrial monopolies are created through statutory
measures.