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Understanding Elements of Topic “Monopoly” For CS
The term monopoly consists of two words: mono means one and Polein means to sell. In economics, monopoly refers to a company that sells a product in the market without replacement. Therefore, it is a one-firm industry.
Monopoly features:
The main elements of a Monopoly are:
1. One seller and several other buyers:
The main characteristic of a monopoly is to have one seller and several buyers. Since individual firms make up all or most of the industry, there is little or no difference between industry and sellers in such a market. Therefore, the firm’s demand curve is equal to or nearly the same as the industry’s demand curve. Because there are many buyers, private buyers cannot influence the price of a product in a monopoly market because the seller’s control over the market is too strong.
2. Without immediate replacement:
In a monopoly, the products produced by the monopolist have no immediate replacement. Such a market can only exist if the cross elasticity of the goods produced by the monopoly is zero. Therefore, the monopolist can determine the value of his option and refuse to sell below the asking price.
3. High barriers to entry for new firms:
Because monopolists generate excessive profits, new firms face many barriers when entering the industry. There are many reasons for this, such as current legal, technological, or substance barriers, which no one else can find. Sometimes a monopoly operates in a small market making it an economic challenge to enter a brand-slapping new business.
4. Price:
In a monopoly, firm has complete control over the availability of goods. But thanks to a large number of customers, small customer requests make up only a small part of the total demand. Therefore, the buyer must pay the price of the product set by the monopolist.
Monopoly types:
There are two types of monopoly –
Government-driven monopoly –
As the name suggests, in such a market, the government of a country or states grants the individual or company the privilege of being the sole supplier of the goods in the market. As this seller becomes the sole or dominant seller, the market becomes a monopoly.
Natural monopoly –
A natural monopoly is a market where sellers experience increased sales across their respective products and relatively high fixed costs. Early sellers in new or emerging markets. Such salespeople take advantage of the cost structure and develop rapidly.
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