Monopoly
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A monopoly represents one of the most extreme market structures in economics, characterized by a single seller dominating an entire industry without meaningful competition.
How it works[edit | edit source]
Types of monopolies[edit | edit source]
- Pure monopoly
- One company has complete control over a product's supply, with no similar alternatives and significant obstacles for others to enter the market.
- Natural monopoly
- One company can deliver a product or service more effectively than several companies could.
- Public monopoly
- Government-controlled organizations that provide necessary services, such as water and electricity.
- Monopoly by merger
- Gaining market control from acquisitions and mergers.
- Technological monopoly
- Exclusive patent rights on a product or process preventing competition.
- Geographic monopoly
- A single company dominates a specific geographic area.
- Government monopoly
- State controlled companies.
- Monopolistic competition
- This market structure includes many sellers who offer different products and have some level of market influence.
Key characteristics[edit | edit source]
- Single producer
- No close substitutes
- Consumers have no alternative products that can satisfy the same need.[3]
- High barriers to entry
- Significant obstacles prevent competitors from entering the market.
- Legal barriers
- Patents, copyrights, government licenses.
- Control of essential resources
- Owning key manufacturing processes or mining operations
- Economies of scale
- Large fixed costs make single firm production most efficient.[4]
- Network effects:
- Value increases with more users.[5]
- Deliberate exclusionary practices:
- Predatory pricing or exclusive contracts.
- Price maker ability
- The monopolist can set prices rather than accept market prices.
- Downward-sloping demand curve
- Unlike competitive firms, monopolists face the entire market demand curve.
- Price discrimination strategies
- First-degree
- Charging each customer their maximum willingness to pay.
- Second-degree
- Pricing varies by quantity purchased.
- Third-degree
- Segmenting markets based on characteristics like age, location, or time of purchase.
Monopoly process[edit | edit source]
- Profit maximization
- Primary objective is to increase the wealth of the owner or the shareholders of the firm by increasing the net profits.
- Maximization process:
- Adjusting production so marginal costs equals marginal revenue.(MC = MR)
- Setting the price according to what consumers are willing to pay for that quantity.
- Earning economic profits in the long run due to barriers preventing competitor entry.
- Maximization process:
Why it is a problem[edit | edit source]
Economists identify several significant problems with monopoly power:
Higher prices and reduced output[edit | edit source]
- Monopolists typically charge higher prices and produce less output than would occur in competitive markets.
- Deadweight welfare loss
- Reduce output creates a deadweight loss, a reduction in total economic welfare not transferred to any party. This represents the value that could have been created if not for the monopolies restrictions of output.
- Reduced consumer surplus
- Convert consumer surplus (the difference between what consumers are willing to pay and what they actually pay) into producer profits.
- Productive inefficiency
- Without pressure, monopolies may lack incentives to:
- Minimize costs.
- innovate or improve product quality.
- Operate at minimum efficient scale.
- Potential for abuse of power
- Paying suppliers less.
- Lowering wages for workers.
- Influencing political processes through lobbying.
Examples[edit | edit source]
- American Tobacco (1890-1907).[6]
- Anheuser-Busch InBev (AB InBev) was created in 2008 from the merger of the two largest beer companies, Anheuser-Busch and InBev. 1.88 billion hectolitres produced globally (one hectoliter equals 100 liters or 26.5 gallons U.S.). AB InBev accounting for 506 million hectoliters, more than double the production of the second largest company, Heineken.[7]
- Carnegie Steel Company (1900).[8]
- De Beers Group:
- Established by Cecil Rhodes in 1888.They have faced numerous allegations throughout its history. He purchased the remaining mines and diamonds from other companies, nearly 85% of the diamond market fell into the hands of Da Beers Group. It began to lose its control in the 1950s when new mines were discovered in other parts of the world. They are responsible for 30% of diamond sales globally and have been accused of limiting the supply of diamonds to manipulate its prices.[9]
- Google.
- Luxottica.
- Microsoft Windows
- Nvidia uses its market leader position to mislead consumers and threaten media.
- Standard Oil (1900).
- The American Telephone and Telegraph Company (AT&T) controlled telecommunications in America until 1982.[10]
- Ticketmaster is often referred to as a monopoly of live events.
- Tyson Foods.
- Yoshida Kogyo KabushikiKaisha (YKK) founded in 1934, currently controls 90% of the zipper market and is rarely accused of being a monopoly.
References[edit | edit source]
- ↑ Nasrudin, Ahmad (January 22, 2025). "Monopoly: Meaning, Examples, Characteristics, Causes, Advantages, Disadvantages". penpoin.com.
- ↑ Tiwari, Dimple. "Monopoly Market: Features and Examples". vendantu.com.
- ↑ "What is 'Monopoly'". economictimes.indiatimes.com.
- ↑ Emerson, Patrick. "Intermediate Microeconomics". oregonstate.education.
- ↑ "Monopoly". law.cornell.edu. July 2023.
- ↑ Armentano, Dominick (March 1, 1971). "Antitrust History: The American Tobacco Case of 1911". fee.org.
- ↑ Conway, Jan (December 11, 2024). "Anheuser-Busch InBev (AB InBev) - Statistics & Facts". statista.com.
- ↑ "The Founding of U.S. Steel and the Power of Public Opinion". Harvard Business School.
- ↑ Jaganmohan, Madhumitha (June 26, 2025). "Market share of the leading diamond mining companies worldwide in 2023". Statista.
- ↑ Whalley, Jason; Curwen, Peter (February 2007). "Internationalization and De-internationalization in the Telecommunications Industry". scholarship.law.umn.edu.