What
is Monopoly?
Definition and
Meaning:
Monopoly is from the Greek word meaning one seller. It is the polar
opposite of perfect competition. Monopoly is a
market structure in which
one firm makes up the entire market. Monopoly and competition are at the two
extremes. It is define as:
"Monopoly refers to a market where there is a single seller for a
product and there is no close substitute of the commodity that is
offered by the sole supplier to the buyers. The firm constitutes the entire
industry".
Explanation:
Monopoly,
therefore, indicates a case where:
(i) There
is only a single seller of a product or service in the market.
(ii) The
goods produced by a sole seller has not close substitutes.
(iii) The
entry of new firms into the industry is effectively barred by legal or natural
barriers.
(iv) The
firm being the sole supplier of a product constitutes industry. Firm and industry thus have single identity. Or we
can say monopoly is a single firm identity.
(v) The
single seller affects no other seller by its own action in the market. The other
sellers too cannot affect the price and output of the monopolist.
(vi) The
demand curve facing the monopolist is negatively sloped. The monopolist being
the only seller of the commodity in the market can increase the total sale by
lowering the price and if, he raises the price, he would not lose all his sale.
The demand curve facing a monopolist is
less than perfectly elastic, i.e., . it slopes downward
from left to right.
For the
monopoly to exist, it is not necessary that the size of a firm should .be large.
Even a small firm may have a monopoly. For instance, a local water company or a
local electricity company, supplying water and electricity in the city possesses
all the characteristics of a monopoly.
Monopolist:
Spencer
has defined monopolist market in the following words:
"A
monopolist market can be defined as one m which there is no perfect substitute
for the product of an individual seller so that there is a separate demand curve
for the product of each seller in the market".
Pure
monopoly in its actual form does not exist in the real world. It is near
monopolies which are very common. For example, railways face competition from
road transport, electricity companies from oil and gas, telephone company from
postal service, internet etc.
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