What Makes a Monopoly?

by Investing School on August 9, 2010

Monopoly comes from the Greek words monos meaning alone and polein meaning to sell. A monopoly happens when a person or company is able to minimize competition by exercising control over their particular good or service. Monopolies are then characterized by their lack of competition. When people have one or two choices for a particular good or service, this might be characterized as a monopoly.

Here are some additional characteristics of a monopoly. If there is only one seller, this can be considered a monopoly. In a monopoly, one seller would control all the goods and produces all the output. In this case, the firm and the industry are one. Conversely, for example, in the personal computer market, there are countless numbers of sellers and each of them are producing a small quantity of output. Another characteristic is market power. In a climate where a company has market power, they have the ability to set their own price. While this power is influential, it is not always without its consequences. If you raise prices, you will always run the risk of losing customers. For example, if there is only one Cable Company in your area and they decide to charge exorbitant fees for their service, an individual could simply choose not to get cable at all. This would be a blow because the monopoly’s objective is to drive up profits.

Another feature is High Barrier to Entry and Competition. If it is too difficult, too expensive or too technologically complex for a potential competitor to enter into the market then the company has made it impossible for the competitor to compete.

Promote or Save This Article

If you like this article, please consider bookmarking or helping us promote it!

Print It | Email This | Del.icio.us | Stumble it! | Reddit |

Related Posts

{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post: