Monopolies Defined

Monopolies What are they?

Monopoly Defined
A Monopoly is the Market Structure in which only a single Producer exists for a specific Good or Service.
Due to Barriers to Entry, new Producers cannot enter the Market to compete against the established Producer.
Monopolies can take several forms, based on different Market Conditions.
These different forms can then be loosely classified into two categories.

Natural Monopolies
Natural Monopolies occur when a Market operates most efficiently by utilizing only a single producer.
This may occur for a couple of reasons:
Economy of Scale issues, where, as a Producer increases output, their price per unit decreases
Or in situations where the Market would not support more than one producer due to the costs involved.
Examples of this second condition include:
Public Utilities such as Gas, Water, Phone, and Sewage
Running multiple sets of service lines and pipes to the same locations would not be efficient or profitable.

Governmental Monopolies
Governmental Monopolies are created both intentionally and unintentionally through regulation.
Examples of regulations that can lead to Monopolies include:
Licenses – the right to operate a business.
An example of this would be Cell Phones, as there is limited frequency bandwidth available; the government determines which provider can utilize what bandwidth.
Patents – the exclusive right to produce and sell a good.
An example of this would be any name brand Pharmaceutical.
Franchises – grants a single Producer the sole right to operate in a specific Market.
An example of this would be Concession Stands at sporting events.

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Monopolies Defined

by Brian Coil

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