Economy

Monopoly

We know as monopoly the type of market structure in which there is only one provider of a given good or service, this means that there is only one company that is responsible for dominating the entire supply market. The monopoly is, under what we know in economics, a form of imperfect competition, in which a single producer or seller is the one who has total control, and the producer has freedom to set its prices freely upwards, damaging many consumers who need to obtain that service. For this reason, in economic sector, monopoly market is not efficient and is considered to some extent an undesirable economy.

What is monopoly?

Monopoly is a market type in the field of the economy in which there is only one provider that gives a certain good or service, and being unique, has the ability to have total control of products by setting the prices he prefers, affecting consumers.

A company that is ruled under monopoly system knows very well the dominance that it exercises over the market and knows that it has no competition, which gives it the freedom to influence directly the price and what they offer within the market. It is said that the monopoly company has the market power and uses it to increase prices and reduce the amount of material they produce in order to obtain greater profits.

Characteristics of monopoly

Monopoly as a company has a number of characteristics that allow us to recognize immediately when we are faced with one, among others we can cite:

Types

Pure

It’s the type of monopoly where there’s only one company. The products manufactured by the company have no competitors or substitutes. Its products are of a homogeneous type, i.e. of the same type. The government does not intervene in company functions in any way. Production factors have the so-called perfect mobility, which is when investors have the facility to buy assets quickly and without any limit.

Natural

It is the one that is created by mandate or consumer demand. It is impossible to control the prices of products because it has potential competition, permanent competitiveness, elasticity of demand and products. It has the capacity to survive against competition, by the consumers’ vote because, when the consumer is not happy with the company provided by one producer, he can usually choose a different one.

Artificial

In it, the company in charge of monopoly acquires some mechanism to prevent the arrival of products similar to those produced in it to the markets. These means used by monopoly companies can be of different kinds and can range from violence to consumer restriction of product demands.

Price Discriminator

Companies use it to sell a certain service or product at different prices and to different consumers. It is a discriminatory monopoly no matter if the costs in the production of the good are the same. In order to achieve this type of monopoly, the company must have several commercial establishments.

Consequences of monopoly

Most of the consequences are negative, some of them are the following:

Advantages

Disadvantages

Examples

The following companies are examples of commercial monopolies around the world:

Written by Gabriela Briceño V.
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