Money Investors
  • Money
  • Business
  • Cryptocurrencies
  • Lifestyle
  • Opinion
Subscribe
Money Investors
Money Investors
  • Money
  • Business
  • Cryptocurrencies
  • Lifestyle
  • Opinion
  • Opinion

What is a monopoly and what are its characteristics?

  • November 10, 2022 10:57 AM
  • Augus Curtis
Monopoly
Total
0
Shares
0
0
0

A monopoly refers to the fact that one company and its product offerings dominate a sector or industry. Monopolies can be considered as an extreme consequence of the free market economy, in the absence of restrictions or regulations, where a company or economic group becomes large enough to monopolize all (or almost all) of the market – goods, supplies – raw materials, infrastructure, and technology- of a particular type of product or service. The term monopoly is often used to describe an entity that has full (or nearly full) control of a market.

Table of Contents

  • Understanding Monopolies
      • High barriers to entry
      • The only seller
      • Define the market price
      • Scale economics
  • The pure monopolies
  • Monopolistic competition
  • Natural monopolies
  • Why monopolies are illegal
  • Antitrust laws
  • Breaking the monopolies

Understanding Monopolies

Monopolies technically enjoy an unfair advantage over their competition, since they are (either the sole provider of the good or service or they are the provider that controls most of the market for that product). Although monopolies may differ from industry to industry, they tend to share similar characteristics that include:

High barriers to entry

Competitors are not able to enter the market and the monopoly can easily prevent the existence of competition by developing a strong foothold in the industry by buying out potential competitors. (An example of this would be the purchase of Instagram and Whatsapp by Facebook).

The only seller

There is only one vendor in the market, meaning the company becomes the very industry it serves.

Define the market price

The company that operates a monopoly decides the price of the product that it will sell, without the existence of competition that can counterbalance it and lower prices. As a result, monopolies can raise prices at will.

Scale economics

A monopoly can often produce at a lower cost than smaller companies. Monopolies can buy large amounts of inventory, for example at a discounted volume. As a result, a monopoly can lower its prices so much that smaller competitors cannot survive. Essentially, monopolies can engage in price wars because of the scale of their manufacturing operations, distribution networks, as well as warehouse and shipping networks, so they can drive the prices of their products much lower than any other competitor. of the industry.

The pure monopolies

A company with a pure monopoly means that the company is the only seller in the market and has no other substitutes. For many years, Microsoft Corporation had a monopoly on the software and operating systems that were used on computers. Also, with pure monopolies, there are high barriers to entry, such as significant costs to undertake the same type of business that the monopoly firm owns, making it very difficult for competitors to enter the market.

Monopolistic competition

When there are multiple sellers in an industry, with many similar substitutes for the goods being produced, and the companies retain some market power, this is called monopolistic competition. In this case, the industry has so many services that offer similar products or services, but their offerings are not perfect substitutes.

In monopolistic competition, entry and exit barriers are typically low, and companies try to differentiate themselves through lower prices and marketing strategies. However, since the products are very similar among different competitors, it is difficult for consumers to know which product is the best. Some examples of monopolistic competition include retail stores, restaurants, and beauty salons.

Natural monopolies

A natural monopoly develops when a company becomes a monopoly due to the high costs of entrepreneurship in the industry. Also, natural monopolies can arise in industries that require unique raw materials, technology, or a specialized industry, where only one company can meet the needs.

Companies that have patents on their products, which prevent competitors from developing the same product in a specific field, have a natural monopoly. Patents allow the company to earn money for multiple years without the fear of competition that can quickly recoup the investment made in terms of capital, infrastructure, research and development. Pharmaceutical companies hold patents on their inventions for several years so that other companies are forced to invest in innovation and research.

There are also monopolies in companies that provide public services such as water and electricity. In this case, governments grant some companies the right to monopoly because, in general terms, it is much more practical and efficient for a single company to control the provision of service in a single area, due to the large investments in infrastructure that are made. . It is hard to imagine what service delivery would be like if multiple companies could co-locate their infrastructure so that consumers had the freedom to choose their utility provider.

Why monopolies are illegal

A monopoly is characterized by the absence of competition, which leads to high costs for consumers, provision of services and goods of lower quality, and corrupt behavior within companies. A company that dominates a single sector can use this advantage for its own benefit and to the detriment of the general interest. This can lead the company to set prices at its discretion, bypassing the laws of supply and demand, preventing new competitors from entering the market and discouraging innovation and competition for the development of better products and services. A monopolized market frequently leads to a situation of injustice, inequality and inefficiency.

Corporate mergers and acquisitions of companies in the same sector are widely monitored by governments because they can lead to the consolidation of monopolies that affect consumers and social welfare. This is why antitrust laws exist to try to limit the market power of these large companies.

Antitrust laws

Antitrust laws and other regulations are intended to prevent monopoly operations in the market, protect consumers, prohibit such practices in commerce and ensure that the market remains open and competitive.

In 1890, the Sherman Act was introduced in the United States in order to protect consumers from monopolistic practices. The law was approved in the Senate by 51 votes to one and in the House of Representatives, it won unanimous support with 242 votes to zero.

In 1914, two additional laws were introduced in the United States to protect consumers. The Clayton Act created new regulations for business mergers and created the Federal Trade Commission, which establishes standards and practices so that laws are enforced and violators can be brought to justice.

Breaking the monopolies

As a consequence of these laws, the division of oil giant Standard Oil Company was carried out, which ended up divided into several companies that competed with each other, as well as the Tobacco Company was divided.

You may also be interested in: What is an oligopoly and how does it affect economies?

In the history of the United States, there have been rulings against companies such as Microsoft, AT & T, since, being companies with broad market power, they limited the options of consumers and generated very high rents on their products.

Today US anti-trust laws target companies like Amazon, Facebook and Google, as they have amassed great market power over the past decade.

Total
0
Shares
Share 0
Tweet 0
Pin it 0
Augus Curtis

I'm Augus Curtis the founder & editor of Money Investors. I love money, I love to make it and also to invest it. Here I share some ideas about business and money.

Related Topics
  • Business
  • Investing
  • Markets
  • Money
  • Monopolies
Editor
Augus Curtis
I'm Augus Curtis the founder & editor of Money Investors. I love money, I love to make…
Featured Posts
  • Modeling Agency Earn 1
    How much a modeling agency earn
    • February 4, 2023 12:08 PM
  • Ethereum 2
    Why you should Invest in Ethereum this 2023
    • February 4, 2023 11:58 AM
  • Bitcoin what is 3
    Why you should Invest in Bitcoin this 2023
    • February 4, 2023 11:48 AM
  • Trump Organization 4
    This was the brazen tax evasion scheme of the Trump Organization
    • February 4, 2023 11:30 AM
  • What is LVMH 5
    What is LVMH: Owner of luxury brands
    • January 15, 2023 6:20 AM
Recent Posts
  • Google Business tools
    5 Google Apps for your online business
    • December 30, 2022 7:15 AM
  • Wordpress work
    10 Advantages of Using WordPress
    • December 30, 2022 6:43 AM
  • Servers hostings
    What Operating System to use in my VPS?
    • December 30, 2022 6:26 AM
Categories
  • Business (87)
  • Cryptocurrencies (34)
  • Lifestyle (42)
  • Money (101)
  • Opinion (74)
  • Travel (2)

ABOUT:

Money Investors is an economic and financial blog that wants to be a source of development of knowledge of the latest advances in studies related to the economy. Analyzing the various most relevant international opinion sources such as The Wall Street Journal, The Guardian, Market Watch, Market Times, BBC News, The New York Times and El País from Spain, we will provide diverse and eclectic approaches for understanding the economic panorama in depth, with a social and critical perspective of the various market players, as well as the institutions and structures that condition the behavior of these markets.

PRIVACY:

We will never disclose or sell your email address or any of your data from this site. We do highly welcome posts and community interaction, and registering is simply part of the posting system.

DISCLAIMER:

Money investors is an independent, advertiser-supported website and may receive compensation for some links to products and services throughout this website. Opinions expressed on this site are the author’s alone, not those of a third-party entity, and have not been reviewed, approved, or otherwise endorsed. Offers may be subject to change without notice. Money Investors exist to thought provoke and learn from the community. Your decisions are yours alone and we are in no way responsible for your actions. Stay on the righteous path and think long and hard before making any financial transaction! Disclosures.

Money Investors
  • About Us
  • Cookies Policy
  • Privacy Policy
  • DMCA
  • Term Of Use
  • RSS
  • Sitemap
  • Contact
© 2022 Money Investors LLC. A Curtis Times Company. All Rights Reserved.

Input your search keywords and press Enter.

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie SettingsAccept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT