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A [[wikipedia:Monopoly|monopoly]] represents one of the most extreme market structures in economics, characterized by a single seller dominating an entire industry without meaningful competition.
A [[wikipedia:Monopoly|monopoly]] is a market structure where a single firm, the monopolist, is the exclusive supplier of a product or service with no close substitutes. This grants the firm significant control over prices and supply, often leading to reduced consumer choice and potential market inefficiencies. They often share a few distinct character traits.
==What is a monopoly?==
===Monopolistic characteristics===
#Single seller
#*One company dominates the entire market, eliminating competition.<ref name=":01">{{Cite web |title=What is 'Monopoly' |url=https://economictimes.indiatimes.com/definition/monopoly |website=Economic Times of India }}</ref><ref name=":02">{{Cite web |last= |first= |date=July 8, 2024 |title=Monopoly Market – Types, Characteristic and Impact |url=https://herovired.com/learning-hub/blogs/monopoly-market |website= }}</ref>
#Price maker
#*The monopolist sets prices unilaterally, unlike competitive markets where prices are determined by supply and demand.<ref name=":01"></ref><ref name=":02"></ref>
#Barriers to entry
#*Legal, economic, or natural obstacles prevent competitors from entering the market.<ref name=":03">{{Cite web |date= |title=Understanding Monopoly Definitions and Barriers to Entry  |url=https://www.studypug.com/micro-econ-help/monopoly-definitions |website=Study Pug }}</ref>
#Unique product
#*The absence of viable substitutes forces consumers to buy from the monopolies.<ref name=":06"></ref>
#Market power
#*Enables manipulation of supply, prices, and consumer behavior.<ref name=":02"></ref>
{| class="wikitable" style="border-style: solid; border-width: 2px; text-align: center" cellpadding="4px"
|+Key characteristics of monopolies
|-
! scope="col" style="text-align: left" |Characteristic
!Description
!Implication
|-
! scope="col" style="text-align: left" |Single seller
|Sole provider of a product/service
|No market competition
|-
! scope="col" style="text-align: left" |Price setting
|Ability to set prices above competitive levels
|Higher consumer prices
|-
! scope="col" style="text-align: left" |Barriers to Entry
|Obstacles like patents, high startup costs, or resource control
|Sustained market dominance
|-
! scope="col" style="text-align: left" |No Close Substitutes
|Unique product offering
|Consumer dependency on monopolist
|-
|}


==How it works==
===Types of monopolies===
{{Placeholder box|How the practice works.}}
Monopolies emerge through distinct mechanisms.
*Natural monopoly
*:Arises when a single firm supplies the entire market at the lowest cost due to economies of scale (e.g., utilities like water or electricity).<ref name=":02"></ref><ref name=":03"></ref><ref name=":04">{{Cite web |date= |title=Legal Monopoly |url=https://corporatefinanceinstitute.com/resources/economics/legal-monopoly/ |website=Corporate Finance Institute }}</ref> Example: Railway networks requiring massive infrastructure investments.
*Legal or statutory monopoly
*:Government-granted exclusive rights via patents, copyrights, licenses, or public franchises. Rationales include ensuring universal access to essential services and incentivizing innovation.<ref name=":01"></ref><ref name=":04"></ref> Example: AT&T’s telephone service monopoly (1907–1982).<ref name=":04"></ref><ref name=":05">{{Cite web |last=Nasrudin |first=Ahmad |date=January 22, 2025 |title=Monopoly: Meaning, Examples, Characteristics, Causes, Advantages, Disadvantages |url=https://penpoin.com/monopoly/ |website=penpoin.com}}</ref>
*Technological monopoly
*:Control over proprietary technology or processes like Microsoft’s dominance in operating systems.<ref name=":02"></ref>
*Pure monopoly
*:Complete market control with no substitutes, though rare in practice.<ref name=":06"></ref>
*Discriminating monopoly
*:Charges different prices to consumer groups based on willingness to pay, business or leisure airline ticket pricing.<ref name=":01"></ref>


===Characteristics of a monopoly===
{| class="wikitable" style="border-style: solid; border-width: 2px; text-align: center" cellpadding="5px"
*Single producer or seller supplying the entire market demand
|+Monopoly types
*No close substitutes or comparable product for consumers
|-
*High barriers to entry prevent competitors from entering the market
! style="text-align: left" |Type
*Price maker ability allows monopolist to set market prices
!Mechanism
*Downward-sloping demand curve, monopolist face the entire market demand curve
!Example
|-
! style="text-align: left" |Natural monopoly
|Economies of scale in infrastructure heavy sectors
|Public utilities
|-
! style="text-align: left" |Legal monopoly
|Government grants exclusive rights
|AT&T and pharmaceuticals patents
|-
! style="text-align: left" |Technological monopoly
|Control over proprietary innovations
|Microsoft Windows OS
|-
! style="text-align: left" |Discriminating monopoly
|Price differentiation by consumer segment
|Airlines (business vs. leisure fares)
|-
|}


===Monopoly process===
===Barriers to entry===
Operate differently from competitive markets:
Barriers sustain monopolies by deterring potential competitors in multiple ways.
====Profit maximization mechanism====
#'''Financial barriers'''
Monopolists maximize profits by producing at the quantity where marginal revenue (MR) equals marginal cost (MC).
#*''Economies of scale''
#*:Large-scale production lowers cots per unit and disadvantages smaller companies.<ref name=":02"></ref><ref name=":03"></ref>
#*''Sunk costs''
#*:High initial investments like research and development deter new firms.<ref name=":06">{{Cite web |last=Emerson |first=Patrick |date= |title=Intermediate Microeconomics |url=https://open.oregonstate.education/intermediatemicroeconomics/chapter/module-15/ |website=oregonstate.education}}</ref>
#*''Resource control''
#*:Ownership of critical inputs (e.g., De Beers’ diamond reserves).<ref name=":05"></ref>
#'''Legal barriers'''
#*''Patents/Copyrights''
#*:Temporary exclusivity for inventions or creative works.<ref name=":07">{{Cite web |date=July 2023 |title=Monopoly |url=https://www.law.cornell.edu/wex/monopoly |website=law.cornell.edu}}</ref>
#*''Licenses/Franchises''
#*:Government-mandated permits (e.g., broadcast spectrum licenses).<ref name=":04"></ref>
#'''Strategic barriers'''
#*''Network effects''
#*:Value increases with user base (e.g., social media platforms)
#*''Predatory pricing''
#*:Temporarily lowering prices to drive out competitors.<ref name=":01"></ref>


Maximization process:
===Effects of monopolies===
*Determining the output level where MR=MC
*''Negative effects''
*Setting the price according to what consumers are willing to pay for that quantity
:#Profit maximization often reduces supply and raises prices.
*Earning economic profits in the long run due to barriers preventing competitor entry
:#Lack of alternatives limits product variety and quality.<ref name=":05"></ref>
:#Absence of competition diminishes incentives for improvement.<ref name=":02"></ref>
:#Monopoly profits exacerbate wealth gaps.<ref name=":06"></ref>
*''Positive effects''
:#Lower production costs can translate to affordable prices.<ref name=":01"></ref><ref name=":07"></ref>
:#Essential for long-term infrastructure planning (e.g., utilities).<ref name=":05"></ref>
:#Patents enable recouping R&D investments (e.g., pharmaceutical drugs)<ref name=":04"></ref>


====Price Discrimination Strategies====
===Government regulation===
*First-degree: Charging each customer their maximum willingness to pay.
Governments try to curb monopoly abuses with antitrust laws, prohibiting anti-competitive practices such as price-fixing or predatory pricing; price regulation, capping the cost of essential services like utilities; and public ownership where the government directly controls a market, similar to Canada's healthcare system.<ref name=":06"></ref><ref name=":05"></ref> The DOJ mandated the breakup of AT&T in 1982 and filed antitrust suits against Microsoft in the 90s.<ref name=":06"></ref><ref name=":04"></ref>
*Second-degree: Pricing varies by quantity purchased.
*Third-degree: Segmenting markets based on characteristics like age, location, or time of purchase


====Barriers to entry====
===Emerging challenges===
*Legal barriers: Patents, copyrights, and government licenses
Digital monopolies (tech giants) face global scrutiny over data control and market dominance.<ref name=":02"></ref>
*Control of material resources: Owning key inputs such as mines, transport, etc.
Monopolists divert resources to maintain privileges such as lobbying against regulations.<ref name=":05"></ref> Global governance complicates regulating multinational firms.<ref name=":01"></ref> Monopolies can enable efficiency and innovation under regulation while unchecked power often hurts the consumer. Antitrust frameworks are needed to balance market control with public interest. Continuous regulatory adaptation remains vital to preserve competition and equity.
*Economics of scale: Large fixed costs make single-firm production most efficient, such as utility companies
*Network effects: Value increases with more users
*Deliberate exclusionary practices: Predatory pricing or exclusive contracts


==Why it is a problem==
Economists identify several significant problems with monopoly power:
=== Higher prices and reduced output ===
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==
{{Placeholder box|Some examples of {{PAGENAME}} include:
*
*
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[[Ticketmaster Entertainment, LLC|Ticketmaster]] is often referred to as a monopoly of live events.
==References==
==References==
{{reflist}}
{{reflist}}


[[Category:Common terms]]
[[Category:Common terms]]
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