A monopoly is a market structure where only one producer exists for a specific good or service due to barriers to entry that prevent new producers from competing. There are two main types of monopolies: natural monopolies, which occur when a single large producer is more efficient, and governmental monopolies, which are created through regulations that intentionally or unintentionally limit competition, such as licenses, patents, and franchises.

1. Monopolies What are they?

2. 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.

3. 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.

4. 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.