What is a monopoly?
The first thing we need to understand in this lesson is what a monopoly is. Monopoly is a market failure, an imperfect form of market, in which one company is the sole provider of a good or service. So people who want to get this good or service can only go to this seller to get it. The word monopoly comes from the Greek, from the terms "mono" (one) and "polein" (to sell), its meaning being that of a market in which only one sells.
The monopoly causes the sole supplier to have total control of the product, being able to decide the price without having any type of control, and the quantity of production of the good or service. The type of monopoly can vary depending on different factors, but it is something that we will talk about later
Causes of monopoly
There are several causes that lead to the appearance of a monopoly, both political and economic. Some of the causes that are usually mentioned are the following:
When the producer exclusively controls a productive value. That is, a company that has all the production capacity of a specific product, being impossible for the rest of the companies to produce it.
Patent granted to a single producer. What causes the seller to be the only one qualified to sell it, being the only one with the patent.
The state controls the supply. The country is the only one that can produce the product, or it only allows production to a specific company.
Coexistence of economy of scale.
Characteristics of monopoly
The characteristics of monopolies are easily traceable. In this lesson on the definition and characteristics of monopoly, we are now going to talk about which are the main ones, the ones that most represent monopolies. The features are as follows:
A single company that produces and sells a good/service.
There are no substitute goods or services. That is, no product similar to the main one that can fulfill the same function.
The number of buyers is large, so there is a high demand that could serve to make several companies profitable by taking care of the product in question.
Very rigid barriers to market entry. It is difficult to access the market, so the main seller does not usually have competition, resulting in a monopoly. This can happen for various reasons, such as the existence of patents or licenses.
The seller has the power to set the price, since the buyers have no other possibility to buy, whatever the price.
There is no perfect mobility of the factors of production.
types of monopoly
To conclude this lesson on the definition and characteristics of monopoly, we are going to talk about the different types of monopoly that we can find. There are a wide variety of types of monopoly, some being much more common than others. The types of monopoly are the following:
Pure monopoly: When there is only one company in an industry. In the real economy, it can only be seen when there is an activity carried out through a public concession.
Artificial monopoly: In this monopoly the producer uses some means to prevent more products from going to market than his own.
Natural monopoly: A company that carries out all the production that the markets require does so at a lower price than if there were more companies competing.
Estanco: It is the monopoly in the production or sale of a good assumed by a State or granted to individuals in exchange for an income to the treasury.
Oligopoly: It is a market in which there are a small number of companies producing a good, which collaborate with each other to exercise power over the market and be able to increase prices.
Duopoly: It is a type of oligopoly in which there are two companies producing the same good.
Cartel: It is an informal agreement between two or several companies whose purpose is to eliminate competition in a certain market.
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