Monopoly Market: Characteristics, Pros and Cons & Effects

Monopoly literally means "alone to sell." In a monopolistic market, a single seller sells a certain product with little or no competition from other sellers.

 

Monopoly is a phrase that refers to a single seller (mono = single and poly = seller). In economics, a monopoly is a company that sells a product that has no competitors on the market. As a result, it is a single-firm industry in all practical senses.

 

What is Monopoly of a Market?

 

A monopolistic market is one in which one company dominates and has complete control over a certain product. In this circumstance, the advantages are enormous. As a result, the monopoly-holding party becomes the product's price maker.

 

The market is a system that facilitates the exchange of commodities and services. Because it is a gathering location for sellers and purchasers to make a transaction, the market also contains a variety of systems, procedures, and social ties (either directly or indirectly). 

 

The transaction will be significantly more important when the company reaches this market. The size of the purchase will most likely overwhelm the company. Accounting software is required for this. Businesses can use the programme to keep track of their financial activity in real time.

 

A monopoly market is one in which one firm or type of market controls a product and no one else produces or competes with it. Furthermore, a monopoly market is a type of market that features items or services that a large number of people require but no competitors.

 

A corporation that manufactures goods and services is referred to as a price maker or price controller. Because it affects so many people's lives, the government takes control of the resources of electricity, gasoline, and clean water.

 

Monopoly is a rare market condition in which only one firm operates and provides goods or services to customers. When compared to what is offered in a completely competitive market, the monopolist sells fewer units but at a higher price. 

 

He is referred to as a "market price-maker" because he has the ability to raise or lower product prices without regard for the actions of competitors. 

 

The demand curve for a monopoly market is downward sloping, indicating that increasing sales is a firm's sole choice for growing profit. And if businesses wish to increase their sales, they can only do it by lowering the product's price.

 

Also Read | Types of Pricing Strategies

 

Characteristics of a Monopoly Market

 

Let's have a look at some of the major dominating characteristics features of a monopolistic market :- 

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Characteristics of a Monopoly Market

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1. Sole Trader

 

In a monopolistic market, a single seller or corporation owns the whole market and sells items that have no close substitutes. Individual sellers have total control over product supply, hence the entire market is managed by them. A monopolist is a trader or company in an industry whose whole output is reliant on them.

 

2. Price Maker

 

As the lone monarch of the industry, the monopolist sets the price. Because there is no other rival in the market, the seller determines the product's price. Because there is no competition, there is no one to contest the seller's pricing, which becomes the ultimate price of the goods on the market.

 

3. Barrier to Entry and Exit

 

A high barrier to entry/exit for new players characterizes a monopolistic market. Government licensing, copyrights and patents, resource ownership, and high beginning costs are all hurdles in a monopolistic market. 

 

Other businesses find it difficult to enter the monopolistic market since a single provider controls the whole production and supply of a certain product.

 

4. Unique Product

 

In a monopolistic market, a firm's product or service is unique, with no near substitutes. Monopoly traders own a patent on a single product that prevents other companies from producing or selling a close equivalent.

 

5. Price Discrimination

 

In a monopolistic market, there is a significant risk of pricing discrimination. Without any opposition, a single trader can adjust the price of a product. He may charge various pricing to different consumers, offering greater charges to the wealthy and lower prices to the poor.

 

6. Downward Sloping Curve

 

The demand curve in a monopolistic market is downward sloping. It means that a company may make more money by increasing sales, which can be accomplished by lowering the product's price.

 

7. Profit Maximiser

 

In a monopolistic market, a company's goal is to maximize profit. Because there is no rivalry in the market, a company may charge a greater price than it would in a competitive market. As a result, the monopolistic price will be referred to as market pricing.

 

8. Stability of Product Elements

 

The non-movable character of all parts of production is one of the key grounds for monopolists' control over resources. No one can duplicate the production mix, therefore eliminating any prospect of a monopolist being deposed

 

Also Read | Stages of Product Life Cycle

 

Pros and Cons of Monopoly Market

 

Below, we’ve listed some of the Pros and Cons of the Monopoly Market.

 

Pros- 

 

1. Development and Research

 

Monopoly businesses make a lot of money. This earnings may be used to support high-capital research initiatives, allowing the firm to bring more creative items to market. Successful research will yield the firm larger revenues in the long run.

 

2. Increase efficiency by taking use of Economies of Scale

 

By utilizing economies of scale, a monopolistic corporation can achieve reduced long-run average costs. 

 

It is not feasible for a small business to enter the rail infrastructure market, for example. This industry necessitates both initial capital and expertise. It may be more cost-effective to have a single large-scale organization manage such initiatives.

 

3. Increase your ability to Innovate

 

Due to the monopoly rights granted by patents, pharmaceutical companies invest heavily in developing new drugs. Patents ensure that pharmaceutical businesses will receive sufficient revenues to cover their initial investment. This type of invention is advantageous to society.

 

Almost all pharmaceutical businesses devote a significant amount of their above-average profits on research and development in order to discover new treatments that no other company could.

 

4. Continual Improvement for the Good of Society

 

Companies with monopolistic power are seen to be the most effective and dynamic. The majority of these businesses engage in constant development in order to provide more items to consumers at a reasonable cost.

 

Google, for example, enjoys a near-monopoly in the search engine sector. Google is constantly updating its platforms in order to improve the user experience.

 

5. Assist with Loss Mitigation Services

 

Loss-making services can be supported by supernormal monopoly profits from government or community-related services.

 

Railway businesses, for example, frequently enjoy a monopoly. The peak hour services provide these enterprises with an above-average profit. However, this will be offset by the loss-making late-running services. So that train firms may provide services 24 hours a day, seven days a week.

 

Cons- 

 

1. Exorbitant Prices

 

A monopolist company is the single supplier of all market production. As a result, the monopolist may demand a greater price than if the market were competitive.

 

Monopolistic businesses can raise prices without fear of competition (since no competition is available in a monopoly market).

 

2. Scale Diseconomies

 

Since there is no competition in the market, monopolistic enterprises attempt to push as much output into the market as possible. After a certain point in manufacturing output, large firms' production methods will become less efficient. 

 

When the corporation begins to create an additional unit of output above a particular threshold, the average per-unit cost will rise. Diseconomies of Scale are the term for this.

 

3. Offer Suppliers Low Prices

 

Monopolistic corporations can afford to pay cheap rates for their supply since they have complete market dominance.

 

Some major supermarkets, for example, have a monopoly in their respective marketplaces. Farmers protested about the retailers' monopoly power, which resulted in them receiving a cheap price for their commodities.

 

4. Customers who are dissatisfied because of a lack of output

 

Monopolistic firms would try to produce at the optimum level to keep the average product cost as low as possible due to economies of scale in large firms. 

 

This output may not always be sufficient to meet the needs of the entire market. Due to the lack of items on the market, customers would be unhappy.

 

5. There is a Lack of Product Innovation and Improvement

 

Because there is no competition, monopolistic enterprises will be unmotivated to develop and enhance their products. Consumers will suffer as a result, as the same quality of service will be maintained in the long run.

 

Also Read | Factors Affecting Supply of a Product

 

Effects of Monopolistic Market

 

1. The most common political and cultural argument to monopolistic markets is that a monopoly may charge a premium to its clients if there were no other suppliers of the same product or service. 

 

Consumers have no alternatives and are obliged to pay the monopolist's price for the items. This is, in many ways, an argument against high prices, not necessarily monopolistic activity.

 

2. The traditional economic argument against monopolies is not the same. A monopolistic market according to neoclassical theory, is bad because it restricts production rather than because the monopolist gains by raising prices. Reduced productivity translates to lower production, lowering overall real social income.

 

3. Even when monopolistic powers exist, such as the USPS' legal monopoly on delivering first-class mail, consumers frequently have a variety of options, such as utilizing regular mail via FedEx or UPS or email. As a result, monopolistic markets seldom succeed in limiting output or generating above-average profits in the long run.

 

4. A monopolistic market is one in which all of the criteria of a pure monopoly are present. When one provider delivers a certain commodity or service to a large number of customers, it is called a monopoly. 

 

The monopoly, or controlling corporation, has complete control of the market in a monopolistic market, therefore it controls the price and supply of an item or service.

 

5. In the absence of extreme hurdles to entry, such as a prohibition on competition or sole ownership of all natural resources, pure monopolistic markets are rare, if not impossible.

 

6. A monopoly is a market that has just one vendor and no close substitutes. A single trader has complete control over the market selling price of products and services. Government licensing, copyright, patents, raw material restrictions, and cartel formation are other important elements that contribute to monopoly. 

 

Also Read | What is Duopoly?

 

A monopoly market is one in which a product has just one seller and no close substitutes. A monopolized product's cross elasticity of demand is either zero or negative.

 

When there is only one business manufacturing a product, there is no distinction between the firm and the industry. Monopoly is a game in which the player sets the price, not the other way around.