What is Monopoly Market? Features, Advantages and Disadvantages

Meaning and Definition of Monopoly

According to D. Salvatore___” Monopoly is the form of market organization in which there is a single firm selling a commodity for which there are no close substitutes”.

According to A. Koutsoyiannis___” It is a market situation in which there is a single seller, there are no close substitutes for commodity it produces, there are barriers to entry“.

According to Ferguson and Kreps___” A pure monopoly exists when one and only one firm produces or sells the commodity in question. In other words, a monopoly is a one firm industry”.monopoly

Features of Monopoly

1. Single Seller: A single producer of a particular commodity or service in a monopoly market gathering large number of buyers, who can be an individual, a group of partners, a joint stock company or a state,it is the alone source of supply for goods and services having no close substitute. The market is referred as “pure monopoly market”.

2. Restricted Entry: There is a restriction on the free entry of new organizations as new sellers are prohibited to enter the monopoly market. Following are the primary barriers restricting the entry of new sellers:

  1. Government licence or franchise.
  2. Resource ownership.
  3. Patents and copyrights.
  4. High start-up cost.
  5. Decreasing average total cost.

3. Homogeneous Products: The products which is produced by the monopolistic firm has no close substitute and is a homogeneous product. The buyer is forced to purchase the product which is available at the labelled price.

4. Price Discrimination: The practice of charging different prices from different buyers for the same goods or service is price discrimination. The monopolist has an advantage of being in the market by discriminating the price as per his convenience.

5. Increase scope for Mergers: It increase the scope of vertical and horizontal mergers. These mergers maintain supply chain management as well as absorb competition efficiently.

6. Price elasticity: The price increase and market demand dictate the price elasticity to complete value ratio with regards to the demand of the product or service being offered by monopoly company or individual. Surplus and loss which are categorized as ‘burden’ is very common to see within a monopoly. It has been referred recently as gain in hiding the consumer as well as the monopolist.

7. Lack of Innovation: There is an inclination of the monopolies towards losing efficiency over a period of time where designing new strategies and marketing skills become second due to single market domination.

8. Lack of Competition: It turns to be fundamental market failure due to the incompetence as a result of market dominance.

Advantages of Monopoly

1. Research and Development: Funding of high cost capital investment spending is done through super normal profits which is useful in improving products and lowering of the costs in the long term by using successful research, e.g., Telecommunication and pharmaceuticals.

2. Stability of Prices: Mostly, the prices in the monopoly market are stable because there is only one firm involved in the market which fixes the price if and when it feels like. But in other structures of market the price are unstable and elastic due to the existence of competition but it does not exist in the monopoly market.

3. Source of Revenue for the Government: Monopolistic firms give huge amount of money which is received by the government as tax.

4. Massive Profits: The absence of competitors resulting in large number of sales monopoly firms incline to receive heavy profits from their operations.

Disadvantages of Monopolistic

  1. Exploitation of Consumers.
  2. Dissatisfied Consumers.
  3. Higher Prices of products.
  4. Price Discrimination.
  5. Inferior goods and services.
  6. Prices and Costs.