Monopoly Market: Seven Important Characteristics / Causes
A monopoly is a market structure where a single company carries all the market share. The total price and output control are with this company. The company has the freedom to change the product price without thinking about the competition.
A monopoly market is easily identifiable by certain characteristics/causes as follows,
Characteristics or Causes of the Monopoly Market
1. Only a Single Seller is Available
In a monopoly, one seller produces all of the output for a good or service. The entire market depends on a single seller.
Carnegie Steel Company obtained control over every level involved in steel production. This was the sole seller of steel which company has almost the entire steel industry in the United States.
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2. Very High Barriers to Entry
Markets with monopolies naturally have very high barriers to entry. An example, patents, licenses, legal, regulations, high start-up costs, etc. These make it impossible for new entrants to join the competition.
E.g. If there is a patent required to produce a product, then the patent holder will get the exclusive rights on production. A classic example is the pharmaceutical industry.
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3. Profit Maximization
The monopolistic firm maximizes profits due to no competition. The firm can charge a set price far above the normal in a competitive market.
E.g. If one company has total control of the market, then the company can charge whatever price they want to enjoy a profit.
4. Economies of Scale
A pure monopoly market has only one seller. The firm owns all of the market shares. It is easy for the firm to achieve economies of scale due to this. The firm can keep production at the optimum level to reduce the total cost.
5. Price Discrimination
The seller can change the price and quantity of the good or service in a monopoly market. In an elastic market, if quantity supply is high if the price is less, and vise-versa. But there is price discrimination in the monopoly market due to the sole seller’s full control.
6. Firm is a Price Maker
Since there is only one seller, the sole decision of the price is made by this seller in a monopoly market.
7. No Substitute Products
There are no substitute products in a monopoly market. The monopolistic firm produces which there is no similar or close related product.
Read More:
Market Structures
Monopoly Market
- Definition, Examples, and Characteristics of Monopoly Market
- Real Examples of Monopoly Market (in the USA, Canada, Australia, World)
- Advantages and Disadvantages of Monopoly Market
Oligopoly Market
- Definition, Types, and Characteristics of Oligopoly Market
- Real Examples of Oligopoly Market (in the USA, Canada, World)
- Seven Important Characteristics of Oligopoly Market
- Advantages and Disadvantages of Oligopoly Market
Monopolistic Competition
- Overview, Definition, & Features of Monopolistic Competition
- Main Characteristics / Causes of Monopolistic Competition
- Real Examples of Monopolistic Competition (in USA, Canada, World)
- Advantages and Disadvantages of Monopolistic Competition
Perfect Competition
