The word monopoly means single seller (mono = single and poly = seller). In economics, a monopoly refers to a firm that has a product without any choice in the market. Therefore, for all sensible functions, it is a single-firm industry.
History of MonopolyThe term "Monopoly" originated in English law to explain a royal grant. Such a grant authorizes a businessman or company to trade in a particular goods while no other businessman or company can do so. Historically, Monopoly Business originated when single producers received special legal privileges from the government, such as reached between 1913 and 1984 between the Federal Communications Commission (FCC) and AT&T. During this period, no other telecommunications company was allowed to compete with AT&T. Because the government wrongly believed that the market could only support a Producer.
More recently, small private companies may engage in practices such as monopoly when production has relatively high fixed costs, reducing long-term average total costs as production increases. The effect of this behavior may temporarily allow a higher fixed costs to work at a lower cost than any other producer.
Definition of Monopoly
Definition of Monopoly by Prof. A.J. Braff - ‘Under pure monopoly, there is a single seller in the market. The monopolist’s demand is the market demand. The monopolist is a price maker. Pure monopoly suggests a no substitute situation. 'Which means there is a single seller in the market, under Pure Monopoly. Monopolist demand is market demand. Monopoly is a Price Maker. Pure Monopoly suggests a substitute condition. Market state of affairs wherever a Producer (or a bunch of Producer acting during a concert) controls the provision of a Service, and where the entry of a new Producer is prevented or highly restricted.
Monopoly Market Features1- Single Seller of the Product
In the Monopoly Market, usually, there is a single firm that produces and / or supplies a particular product / commodity. It is fair to say that such a firm constitutes the entire industry. Also, there is no difference between Firm and Industry.
2- Entry Restrictions
Another feature of Monopoly Market is Entry's ban. These restrictions can be in any form like financial, legal, institutional, artificial etc.
3- No Close Substitutes
Typically, a Monopoly sells a product with no close choice. Therefore, the cross elasticity of demand for such a product is either zero or very small.
Now, to a certain extent, all products are substitutes for each other. However, some essential features in an object or group of objects can create gaps in this series of Substitution.
A monopolist or a single seller is one who identifies these intervals, excluding competition, and controls the supply of a particular item. Such a monopoly can use its single-selling power to realize maximum sales in any way. It also includes price discrimination.
It is important to note that in Real Life, complete monopoly is extremely rare. However, a Firm can dominate the supply of a goods or group of goods. For example, in public utilities, such as transportation, water, electricity, etc., Monopoly Market usually exists to reap the benefits of mass production.
As there is only one Firm selling the product, it becomes a Price Maker for the entire industry. Consumers will have to accept the price set by Firm as there are no other sellers or close substitutes.
Causes of Monopoly Markets
The purely Monopoly Market is rare and perhaps impossible even in the absence of complete barriers to entry, such as restrictions on competition or sole possession of all-natural resources
Effects of Monopoly MarketsThe specific political and cultural objection to MonopolyMarkets is that Monopoly can charge a premium for its customers in the absence of other Suppliers of the same product or service. Consumers have no choice and are forced to pay the price of the product decided by the monopolist. In many cases, this is an objection against high prices, not necessarily monopolistic behavior.
The standard economic argument against the monopolist is different. A monopolistic market, according to neoclassical analysis, is undesirable because it restricts output, not because of monopolist benefits for raising prices. Restricted output equals lower output, which reduces total real social income.
Even if monopolistic powers exist, such as the U.S. The legal monopoly of Postal Service's first-class mail delivery, consumers often have several options such as using standard mail via FedEx or UPS or email. For this reason, it is unusual for monopolistic markets to successfully restrict output or enjoy super-normal profits in the long run.
Why are Monopoly Illegal?Monopoly is characterized by an absence of competition, which can lead to high costs for consumers, inferior products and services, and corrupt practices. A company that dominates a sector or trade will use that dominance to its advantage, and at the expense of others. It can create artificial scarcities, fix prices and circumvent the natural laws of supply and demand. This can inhibit new entrants into the field, discriminate and inhibit experimentation or new product development.
Mergers and acquisitions between companies in the same business are highly regulated and researched for this reason. firms are generally forced to divest assets if federal authorities believe that the proposed merger or acquisition would violate anti-Monopoly laws. By dividing assets, it allows competitors to enter the market by assets that may include plant and equipment and customers.
Regulation of Monopolistic Market
With the model of perfect competition, the model for a monopolistic competition is difficult or impossible to replicate in the real economy. True monopolies are generally the product of regulations against competition. For example, it is common for cities or towns to give local monopolies to utility and telecommunications companies. Nevertheless, governments often regulate private business behavior that appears monopolistic, such as in a situation where a firm owns a share. The FCC, the World Trade Organization, and the European Union each own monopolistic markets. There are rules for managing. These are often called antitrust laws.
Real World ExampleAlmost monopolies exist in the United States. For example, tobacco companies are subject to strict rules, legislation and lawsuits, not to mention taxation. According to the financial news giant, "Bloomberg.com", tobacco stock prices fell in October 2018, when the Food and Drug Administration (FDA) announced that it would implement strict new regulations to reduce nicotine levels in cigarettes. Can do.
In this volatile market environment, many tobacco companies have disappeared and Altria is the monopolize of the tobacco market.
According to "Marketwatch.com", Altria had estimated 50% ownership of the cigarette market in 2018, declining by 0.83%. The cigarette market is shrinking, but CNBC reports that e-cigarettes and smokeless products are a growing market. Altria's MarkTen and Green Smoke e-cigarettes, however, have not progressed well. According to NPR, at the end of 2018, Altria announced plans to purchase a 35% stack in juul for $ 12.8 billion. Thus, if smokers smoke up to Marlboros to Juul, which is currently growing rapidly, Altria will not suffer harm.