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What are monopolistic markets? 

a man is rolling goods on a cart

The monopolistic market definition describes a market where only one company sells particular goods and services to customers. 

As the name implies, a monopolistic market means a non-competitive market in which a single company has complete control over the market, and determines the supply and price of specific products and services.

The opposite of a monopolistic market is a perfectly competitive market, in which several companies compete to sell similar goods and services. Markets do not have control over the prices and supply. 

Monopolistic markets explained

What does a monopolistic market mean? Monopolistic markets occur when one supplier provides a specific good or service to a large number of consumers. The controlling company, often referred to as the price maker, sets the price and supply of a good or service. 

Other companies are prohibited from entering the market. In addition, authorities can impose barriers to prevent companies from entering the respective market. 

On the other hand, the controlling company – in many cases a state-owned firm – may be unable to exit the market because it provides essential goods and services to the public for which there are no substitutes: for example, electricity or telecommunication companies. 

Purely monopolistic markets are uncommon due to the lack of entry barriers such as a ban on competition or sole possession of natural resources. In addition, there is always substitution of products or services available. 

A monopolistic market, in economics, can become a profit maximiser because monopolistic companies can generate more profit by changing the supply and price of the goods or services.

Monopolistic markets are caused by several factors.

Factors causing monopolistic markets

A monopolistic market example is Indonesia’s electricity market. The state-owned electricity company Perusahaan Listrik Negara (PLN) monopolises the country’s transmission and distribution of electricity. PLN has complete control over deciding what the customers pay because there are no other wholesale markets and distributors. There are independent power producers, but they can only sell their electricity to PLN. 

Another monopolistic market example is the US Postal Service, which has a legal monopoly on delivering all types of mail in the US. Customers do, however, have options to send standard mail and packages using courier services such as FedEx or UPS.

Effects of monopolistic markets

The major objection to monopolistic markets is the risk of high prices being paid by customers. 

The monopolist can charge a premium to customers because no other suppliers provide the same product or service. Therefore, customers do not have any choice but to pay the monopolist's price.

According to this school of thought, a monopolistic market is undesirable because it restricts output. As a result, it results in less output, which reduces total real social income.

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