Monopolies arise in the market due to the following three reasons. Reasons for the Existence of Monopoly Market Some of the monopoly market examples are your local gas company, railways, Facebook, Google, Patents, etc. The monopolist does not discriminate among customers and charges them all alike for the same product. The price is determined by evaluating the demand for the product. The monopolist is the price maker, i.e., it decides the price, which maximizes its profit.
It has high barriers to entry for any new firm that produces the same product. Monopolists are guided by the need to maximize profit either by expanding sales production or by raising the price. There are profit maximization and price discrimination associated with monopolistic markets. Monopolies possess information that is unknown to others in the market. The product has only one seller in the market. Some characteristics of a monopoly market are as follows. This is the true essence of a monopoly market. The above 3 conditions give a monopoly market the power to influence the price of certain products. Restrictions on the Entry of any New Firm - There needs to be a strict barrier for new firms to enter the market or produce similar products. Hence in a monopoly market, there must be no close substitute for the product. There are No Close Substitutes - There will be a competition if other firms are selling similar kinds of products. This condition has to be met to eliminate any competition. That seller could be either an individual, a joint-stock company, or a firm of partners. There is a Single Producer - The product must have a single producer or seller. There are three essential conditions to be met to categorize a market as a monopoly market.
There are buyers and sellers in a market which determines the size of the market.Ī monopoly market is a form of market where the whole supply of a product is controlled by a single seller. It facilitates the exchange of goods and services, and it can be a physical place like a retail store where people meet face-to-face or a virtual one, i.e., online e-commerce websites. One can define the market as a place where two or more parties meet for economic exchange. It does not face much cross elasticity of demand with all other products. No other firm produces a similar product, and the product is unique. The seller does not face any competition in such a market structure as he or she is the sole seller of that particular product. In a monopoly market structure, a single firm or a group of firms can combine to gain control over the supply of any product. Thus a monopoly market is the one where a firm is the sole seller of a product without any close substitutes. If you break up the word “Monopoly”, you get “Mono” which means single or solo, and “Poly” which means “seller”.
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