Monopoly Market Meaning, Features of Monopoly | Micro Economics Notes

Features of Monopoly

Micro Economics Notes

Monopoly Market Meaning

Monopoly market is one in which there is only one seller of the product having no close substitutes to the commodities sold by the seller. The seller has full control over the supply of that commodity and also he is the price maker. There being only one firm, producing that product, there is no difference between the firm and industry in case of monopoly. Monopoly is a price maker not the price taker as in the case of perfect competition. Its demand curve slopes downward to the right.

In the words of koutsoyiannis,

“Monopoly is a market situation in which there is a single seller, there are no close substitutes for commodity it produced there are barriers to entry of other firms”.

Examples of Monopoly:

a) We travel by train owned and run by the Government of India.

b) We get our electricity from State electricity board which is owned by state government.

Features of Monopoly:

The various features of Monopoly are:

1. Single Seller and large number of buyers:

Under monopoly, there is a single seller selling the product. As a result, the monopoly firm and industry is one and the same thing and monopolist has full control over the supply and price of the product.

2. No Close Substitutes:

The product produced by a monopolist has no close substitutes. So, the monopoly firm has no fear of competition from new or existing products. For example, there is no close substitute of electricity services.

3. Restrictions on Entry and Exit:

There exist strong barriers to entry of new firms and exit of existing firms. As a result, a monopoly firm can earn abnormal profits and losses in the long run. These barriers may be due to legal restrictions like licensing or patent rights or due to restrictions created by firms in the form of cartel.

4. Price Discrimination:

A monopolist may charge different prices for his product from different sets of consumers at the same time. It is known as ‘Price Discrimination’.

5. Price Maker:

In case of monopoly, firm and industry is one and the same thing. So, firm has complete control over the industry output. As a result, monopolist is a price-maker and fixes its own price.

6. Monopoly is also an industry:

Under monopoly situation, there is only one firm. There is no difference between the study of a firm and industry.

7. Average revenue and marginal revenue:

Under monopoly, average revenue curve and marginal revenue curves are separate from one another and both slopes downward.

8. Inelastic demand curve:

The demand curve in case of monopoly is less elastic because there are no close substitutes in monopoly.

9. No Selling cost

Under conditions of monopoly, there is no need of selling costs. We know that under monopoly, there is only one seller and no other close substitutes. So, firms enjoying monopoly situations do not spent amount on advertisement.

10. Imperfect knowledge among buyers:

In case of monopoly, buyers do not have perfect knowledge about the prices charged by a monopolist because. There is only one seller and also monopolists are price maker. Buyers have no other alternative for the product. They buy the products at monopolist price.

error: Content is protected !!