Monopoly definition
Monopoly definition is a market structure in which a single company or entity has complete control over the supply of a particular product or service. A monopoly describes a situation in which a company is either the sole supplier of a product or service or one of a small number of such suppliers. Governments across the world have legislated to ban, break up or regulate monopolies.
Key takeaways:
A monopoly is a market structure in which a single company or entity has complete control over the supply of a particular product or service.
Monopolies typically arise when a company dominates a market, either through natural barriers to entry, such as high startup costs, or through anti-competitive practices, such as price-fixing or collusion.
Monopolies can have both positive and negative effects on consumers and the economy. On the one hand, monopolies may be able to provide higher-quality products and services at lower costs due to economies of scale.
Monopolies can be contrasted with other market structures, such as perfect competition, oligopoly, and monopolistic competition, which each have their own unique characteristics and effects on the market.
Where have you heard about monopolies?
Investors following the latest takeover bids will frequently hear of 'monopoly concerns' about the likely effect of the proposed tie-up on competition in a market economy. Politicians will promise to get to grips with any alleged monopolies said to be abusing their position to over-charge consumers or to shut out other businesses.
What you need to know about monopolies
A monopoly can arise for several reasons, the most obvious being that the business concerned has been granted a licence by the state giving it sole rights over a product or service. More common in recent times has been the innovative company whose offering has become hugely popular and, because of patent or copyright protection, it faces no competition in this field. In more established business sectors, the collapse of a large concern can leave the only rival in a monopoly position. Anti-monopoly legislation, also known as anti-trust, in most jurisdictions provides for penalties for businesses conspiring to create a monopoly.
Types of monopolies
There are several types of monopolies that can exist in the market, including:
- Natural monopoly: This type of monopoly occurs when a single company can provide goods or services to a market more efficiently than any potential competitors due to factors such as economies of scale or access to essential resources.
- Geographic monopoly: A geographic monopoly exists when a single company has control over a particular geographic region, such as a small town or rural area.
- Technological monopoly: This type of monopoly occurs when a company has control over a specific technology or production process, such as patented products or proprietary software.
- Government monopoly: Government monopolies are entities created or authorized by the government to provide goods or services to the public, such as public utilities or state-owned enterprises.
- Legal monopoly: Legal monopolies are granted by the government through patents, trademarks, or copyrights, giving a company exclusive rights to produce or sell a particular product or service.
Each type of monopoly has unique characteristics and can have different effects on the market and consumers.
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