Monopoly

Topics: Monopoly, Economics, Oligopoly Pages: 2 (472 words) Published: February 5, 2013
Monopoly
Monopoly means a market where there is only one seller of a particular good or service.In economics, a monopoly (from the Latin word monopolium – Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. Monopoly should be distinguished from monopsony, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly).

Characteristics
Only one single seller in the market. There is no competition. There are many buyers in the market.
The firm enjoys abnormal profits.
The seller controls the prices in that particular product or service and is the price maker. Consumers don’t have perfect information.
There are barriers to entry. These barriers many be natural or artificial. The product does not have close substitutes.
Advantages of monopoly
Monopoly avoids duplication and hence wastage of resources.
A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers. Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly. Monopolies may use price discrimination which benefits the economically weaker sections of the society. For example, Indian railways provide discounts to students travelling through its network. Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition. Disadvantages of monopoly...
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