Definition of monopoly
To define a monopoly, one must understand that it refers to a market structure where there is only one seller or provider of a particular product or service. This essentially means that there is no competition in the market, and the entity has complete control over the supply and price of the product or service it offers.
To further elaborate on this definition, a monopoly typically arises due to various factors such as:
1. Barriers to entry: These are obstacles that prevent other firms from entering the market and challenging the monopoly's dominance. Barriers could include high start-up costs, exclusive access to resources, legal restrictions, or patents.
2. Market power: Monopolies have significant market power, which means they can influence the market by setting high prices, restricting supply, or controlling the quality of their product or service.
3. Lack of substitutes: Monopolies often arise in industries where there are no close or viable substitutes available to consumers. This lack of alternatives allows the company to operate without competition.
It is important to note that monopolies are generally regarded as a negative form of market structure because they can potentially lead to higher prices, reduced product variety, and lower levels of innovation.