Monopoly - Micro Economics

Topics: Monopoly, Economics, Government-granted monopoly Pages: 3 (644 words) Published: December 9, 2010

Monopoly is a market structure in which there is a single seller, there are no close substitutes for the commodity it produces and there are barriers to entry in same industry.

Characteristics of Monopoly
Single Seller: There is only one seller; he can control either price or supply of his product. But he cannot control demand for the product, as there are many buyers. •No close Substitutes: there are any close substitutes for the product. The buyers have no alternatives or choice. Either they have to buy the product or go without it. •Price: The monopolist has control over the supply so as to increase the price. Sometimes he may adopt price discrimination. He may fix different prices for different sets of consumers. A monopolist can either fix the price or quantity of output; but he cannot do both, at the same time. •No Entry: there is any freedom to other producers to enter the market as the monopolist is enjoying monopoly power. There are strong barriers for new firms to enter. There are legal, technological, economic and natural obstacles, which may block the entry of new producers. •Firm and Industry: Under monopoly, there is no difference between a firm and an industry. As there is only one firm, that single firm constitutes the whole industry.

Causes for Monopoly

Natural: A monopoly may arise on account of some natural causes. Some minerals are available only in certain regions. For example, South Africa has the monopoly of diamonds; nickel in the world is mostly available in Canada and oil in Middle East. This is natural monopoly. •Technical: Monopoly power may be enjoyed due to technical reasons. A firm may have control over raw materials, technical knowledge, special know-how, scientific secrets and formula that enable a monopolist to produce a commodity. e.g., Coco Cola. •Legal: Monopoly power is achieved through patent rights, copyright and trade marks by the producers. This is called legal monopoly. •Large Amount of...
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