What Does Monopoly Mean?
A monopoly exists in a case where a specific enterprise of a person is the sole supplier of a particular commodity. And it is the direct contrast of monopsony. Monopsony relates to a single firm controlling the market to buy a service or good. However, a monopoly is also different from oligopoly. Oligopoly is a type of market that consists of few sellers dominating the entire market. Therefore, monopolies are characterized by the lack of economic competition in producing the service or right, the lack of any valuable substitute for the service or good, and there are higher chances of a high monopoly price that is in the real sense above the seller’s marginal cost. This, in turn, leads to higher monopoly profit.
The term monopolizes the process through which a firm acquires the capability to exclude competitors and raise prices. In the field of economics, a monopoly refers explicitly to one seller. In terms of the law, a monopoly describes a business entity that enjoys considerable market power. This includes the power to initiate overly high prices. Even though monopolies can be big firms, the size of the business is not the characteristic of a monopoly. A small firm can still have the advantage of raising the price in its market.
A monopoly is very different from the monopsony, where there is just one buyer of the service or product. However, it can also have a certain degree of monopsony control over a particular sector of the market. In addition, it is different from a cartel. And cartel is a form of oligopoly where several providers work together to coordinate the sale of goods, the prices, and the type of services. Oligopoly, monopsony, and monopoly are all circumstances in which a few or even one firm has the advantage of market power. Therefore, the firms interact with their suppliers and customers in ways that can distort the market.
The monopoly type of business can be developed by the government, and integration, or can develop naturally. In most cases, the competition laws often restrict the monopolies because of the government’s concerns over the potential adverse effects. Holding a monopoly or a dominant position in the market is mostly not illegal. However, specific categories of behavior within the firm can be considered abusive, and the firm can, therefore, incur legal sanctions. The state often sanctions a government-granted monopoly or also known as a legal monopoly. This is done most times to help provide the incentive to enrich domestic interest groups and to invest in a risky venture. Trademarks, copyrights, and patents are, at times, used as examples of legal monopolies.
The Market Structure
In terms of economics, the general idea of monopoly is vital in the study of the management structures. The structures directly involve normal factors of economic competition and serve the basis for specific topics such as economics or regulation and industrial organization. There are usually four types of market structures. They include monopoly, oligopoly, monopolistic competition, and perfect competition. Under this topic, a monopoly describes the structure that has a singles supplier who produces and sells that given service or product. In a case where there is a single producer in a given type of market, and there are no substitutes for the commodity, then the market structure is “pure monopoly.”
At times, there are several sellers in the industry, and there exist many substitutes for the commodity offered, even though the companies retain some level of market power. This type of market is monopolistic competition, while where the companies interact; an oligopoly strategically is the result. The most important finding from the theory compares the price-fixing techniques across the market structure, analyzes the power of any given structure on welfare, and vary demand assumptions to assess the results for the abstract model of the society.
The boundaries of the factors that constitute a market structure and what does not constitute are the relevant distinctions that help to make the economic analysis. In other words, a commodity is a specific concept that includes time-related and geographical characteristics. These two major factors indeed differentiate monopoly from most other forms of market structure.
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