- when one seller makes a product for which there are no good substitutes."De Beers wanted to protect their monopoly on the diamond industry"
- Larger income means that the company can invest more in research and may lower the price of their product in the long term
- If one company doesn't have to compete against others within a country, it can work on developing enough to be able to compete in the international marketplace.
- Sometimes monopolies are just the most efficient way, such as in a natural monopoly.
- Monopolies are very susceptible to corruption. When there is no competition, then the consumer can't voice their opinion through money about what they want from a product.
- Can be inefficient because of a lack of need to improve.
A market structure where many sellers offer products that are similar but not perfect substitutes. A good example of this is the restaurant business. In a food court, all the restaurants are selling food, but they all have a monopoly on the type of food they are selling, whether it be Chinese, Italian, fast food, or doughnuts. While they are all consumable, they are not exactly substitute-able, so consumer choice is still in play.
Below is a video from Khan Academy detailing the effects of Monopolistic Competition and Economic Profit.
- In an oligopoly, only a few large companies sell a similar product. The image below shows how the majority a food available is all owned by just a few large companies.
Types of Monopolies
Natural Monopoly: These form because having one company making a a product lowers the price of the commodity because it is more efficient. This relates to...
Government Monopoly: Which is when the government either has control over a product or only authorizes one company to supply this product. The biggest example of a government monopoly, which also has traits from a natural monopoly because it is the most cost effective way to do things, is utilities such as tap water and electricity.
Geographic Monopoly: Is when a company has a monopoly over a certain geographical area because there is no other companies that make a similar product within a certain radius, so people are forced to use one company's services. This is more common in rural areas where there may be only one large grocery store in the general vicinity.
Technological Monopoly: Is when a company or person has complete control and use of a technology involved in the production of a product. This is usually secured by having a patent on this technology or process, which allows them to have full rights for a certain period of time.