![]() It is generally very difficult to see real-life examples of pure monopoly because governments do not encourage that practice and impose some kind of regulation to protect the consumer.įor a long time, Microsoft happened to be the only provider of computer software and operating systems. More often than not, a pure monopoly exists only in theory because it can exist only in a free economy where no government regulations exist. A supplier who happens to be the only seller of a product or service that has no other close substitutes in the market is a pure monopolistic player. Monopolies take full advantage of such price inelasticity to maximize their profits Monopoly Example Lack of substitutes makes the demand for the product relatively inelastic. Lack of SubstitutesĪ company becomes a monopoly when it sells a product for which there is no substitute. Moreover, it can increase the price of the product with little or no interference from market players and other external factors. The gasoline company knows this and tries to maximize its profits by increasing the prices so long as it is able to fulfill the demand for gas. Just because the gasoline company increased the price on a particular day, we are not going to stop refueling our gas tanks. Irrespective of whether the gasoline prices are higher or lower, consumers have to fuel up their cars. Usually, monopoly players enjoy price inelastic demand, which means that the demand for the product does not increase or decrease based on the price.Īn example of price inelastic demand would be gasoline prices. Price Inelastic DemandĪs soon as it becomes the only supplier of the essential good or service, the monopoly has the freedom to determine the price of the product or service at its discretion without the need to worry about demand. With no other market player available to supply the good or service, consumers have no choice but to buy the product or service from the monopoly. ![]() Only SellerĪ company becomes a monopoly by becoming the only supplier of a product or service. Other barriers of entry could be technological superiority, high capital outlay requirements, economies of scale, superior distribution network, and cost advantages.įor instance, a monopolistic player might be able to achieve better economies of scale in producing the product due to its technological superiority or superior distribution network, and then sell its product at such low prices that its competitors might not survive the price onslaught and eventually close down, or get acquired by the monopoly player. A company also becomes a monopoly by acquiring or killing its competition. ![]() Sometimes a company has such a strong foothold over the market share for a product that other players are unable to enter the market. In fact, all monopolies possess certain similar characteristics which differentiate them from the rest of the competition High Barrier to Entry Monopoly CharacteristicsĪlthough they can exist for any product or service, monopolies can usually be seen in essential goods or services – products or services which consumers cannot do without – such as utilities (gas, electricity, water, etc.). They have an unfair advantage over other suppliers, either due to the fact that they are the only provider of the product or service, or they control the market share or both. ![]() Monopolies can be considered as an extreme form of free-market capitalism where there are no restrictions or restraints of any sort on a particular company, that it becomes so huge and controls all or nearly all of the market. The product or service in this context could refer to all kinds of goods, supplies, commodities, infrastructure, or assets. ![]() In other words, consumers are forced to buy the product only from a single supplier due to a lack of competition for the supplier from other market players. Monopoly refers to a type of market structure in which a single company and its goods and services dominate the market at all times. ![]()
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