How monoply is defined in economics

Like perfect competition, monopoly is also a market situation.

It is a market in which one producer controls the whole supply of a commodity which has no close substitute.

Characteristics of Monopoly:

Number of Producers:

There is only single producer of product.

Nature of Product:

Monopoly firm produces such product which has not any close substitute available in the market.

Price Discrimination:

It means charging differentiated prices of the same product. Since monopoly is a single producer of the product it often charges varying prices of the same product to different buyers.

Price Maker:

Monopoly is a price maker and it charges a price of its own.

Entry Barriers:

Monopoly firm sets up different kinds of entry barriers for a new entrant. Few Entry barriers are given below:

Barriers of Economies of Scale:

Monopoly firms enjoys economies of scale which decreases the cost of production and when new firm enters the industry monopoly firm reduces the price of product making it impossible for new entrant to survive. This policy of monopoly is known as cutthroat tactics.

Technical Tactics:

Sometimes firms have their own secret and special techniques of production of a commodity or other firm or company is aware of that technique. For example: F-16 of United States of America etc.

Costly Projects:

Some of the projects are very costly thats’s why these kinds of projects are out of the budget of many companies and firms. This is also a reason for the existence of monopoly in the market.

Social Welfare:

Sometimes companies themselves consider competitions not more than a waste of time and capital. These types of business are generally related to the public welfare. For example: department of railway etc.

Agreements between Entrepreneurs:

Sometimes there can be a situation in which entrepreneurs of different companies or firms come up with an agreement to create a monopoly in market for long term welfares.

Natural Resources:

Some countries have specific climate and soil nature. According to these specializations these countries come up with monopoly in their products. These products can also be minerals. For example: Coffee of Brazil, jute of Bangladesh and Malaysia’s rubber etc.


Like copyrights or legal rights of producing or selling a product.


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