“Mono” means solo or single, and “Poly” means the seller. A monopoly market is thus the market where an establishment is the single seller of a product or service.
Defining a Market
A market is where people gather to buy and sell something. Numerous consumers exist in a market, offering the same or different types of products and services. There is a physical and virtual market, and the number of sellers and buyers determines whether a market is large or small.
There is another type of market, and that is the need-based market. After a consumer buys a product, he will need it for the second time or opt for something different. Buyers want substitutions because of various reasons, including price and quality. These demands build up a market that is called jobs-to-be-done.
Understanding what is a monopoly
A monopoly market is where a single company controls almost all the output, sometimes the entire, of one particular industry. That company sets the prices and controls the output while no other company remains in competition in that particular market.
- The seller could be an individual, a firm of joint stock or owned by partners.
- There would be no competitor or substitute for the same product or service.
- Any other firm can’t quickly enter the market or produce a similar type of product.
- Copyright laws protect the rights of a monopoly business in a market and restrict the production of the same products by other companies. The monopoly business owns patents and government licenses.
- If the government thinks the monopoly company benefits the public, it may restrict other companies from entering the market. Similarly, telephone and electricity companies are prevented from leaving the market.
Technological superiority, capital requirements, supply of natural resources, deliberate actions and network externalities may be some of the other barriers to entering a monopoly market.
Monopoly Economy
If a company is a single seller in an entire product or service-based market, it is evident that the farm is to hold and run a monopoly economy. All the profits go to the company, and it can set the prices according to its standards. Since there is no competition, people will have to pay a fixed rate for a product or service, no matter how much higher.
Even a monopoly company can sell the same product to different buyers at different prices, and the company can also change the prices to attract more customers.
Types of monopoly
Various concepts are available in the market regarding the types of monopolies. Some divide the monopoly markets into three types, natural, unnatural and state. Some say there are just two types of monopoly, public and private. But based on their nature of activities, it would be better to divide monopolies into five types.
Pure monopoly
Pure monopolies are very rare now; they do not let any other competitor enter the market and have no substitute.
Simple monopoly
Simple monopoly means a business operated in one market that charges the same price for a product from all buyers.
Natural/ technological monopoly
When a monopoly business grows depending on a unique raw material or a superior technology that others can’t possess, it is called a natural or technological monopoly.
Industrial/ Public monopoly
Governments set up this monopoly to offer essential services and products to the public. When the cost of production is too high, it is needed to be controlled by the government only. Moreover, the isolated farm producing and selling the product has to be reliable and beneficial for the public.
Legal monopoly
A legal monopolistic farm holds the rights to manufacture and sell a product or provide a service.
Why a monopoly market emerges
The reasons monopoly markets exist are evident from the description of the types of monopoly markets. Apart from the above-mentioned reasons, one supplier may become more efficient sometimes, to become a monopoly. Sometimes, a market naturally lacks a substitute.
Conclusion
The government always has certain regulations for every monopoly market. Usually, natural gas, power, and telephone supply companies get permission to run monopolies from governments. For others, the government has strict regulations like price limitations and investigating unfair activities, among others.
