Business

What is Monopoly? – Types, Advantages, and Disadvantages

What is Monopoly

A monopoly refers to a commercial situation in which only one supplier in a market is in charge of granting a good or service. It means that only one company dominates the supply in the market, thus excluding the competition. In this, the clients or consumers are the most harmed since the bidder, being only a company, is in charge of establishing the price at his convenience, which is frequently high.

A monopoly is considered an imperfect competition since only one company is responsible for a good or service. However, it is very rarely present in an absolute way.

Types of Monopoly

Pure Monopoly

It is the kind of monopoly in which only one company manufactures the products. The government of the country of origin does not intervene in the company.

Natural Monopoly

It is the one that is created according to the demand of the people. In this case, the monopolistic company cannot control prices since it has competition, the elasticity of demand, etc.

Artificial Monopoly

The  company prevents the products and services of the competition from reaching the market, so consumers can only buy the effects of the company that practices it.

Price Discriminating Monopoly

Companies use it to sell a good or service at different prices and consumers. Production prices will not matter since a monopoly discriminates against them.

Characteristics of Monopoly

  • A company, manufacturer, or producer is solely in charge of manufacturing and selling the product or service to consumers. Consequently, it increases prices by the monopolistic or monopolistic company since there will be no competition that prevents the sale of the good or service.
  • Through barriers, the company that controls the market prevents other bidders from entering and becoming its competition.
  • There is no similar product or service on the market that can replace the one that the monopoly company is responsible for selling.
  • The company that employs the monopoly can set the price it wants for the good or service, so customers are the losers.
  • The demand for the product is too high, so many people want or need to get it.

Advantages

The monopoly does not have many advantages for consumers or companies that compete with a monopolistic organization. However, for the company that practices said commercial regime, the benefits are the following:

  • The production costs of the monopoly company are meagre.
  • They eliminate the danger of disproportionate competition and, at the same time, the excess capacity that the company has.
  • The production of the products is possible on a large scale.
  • The company obtains a large profit margin, for which its balance will be positive.

Disadvantages

  • Consumers must pay the price determined by the  company, which is unfair to them since they do not have the choice of choosing a similar product or one that provides them with the same benefits.
  • There is no competition for the company that practices the monopoly, so management effectiveness is reduced.
  • The imperfect competition that  has causes low-income customers and small producers to be affected.

Consequences

Monopolies, most of the time, do not bring positive consequences, but rather negative ones, such as:

  • Consumers are affect since they must pay too high prices to acquire the goods or services.
  • The only limitation of monopolies is demand because if it falls, the prices of products or services must also fall.
  • Products and services will have a price increase.

Examples of Monopoly

  • Microsoft is a multinational that produces software and hardware.
  • Coca Cola a multinational food and beverage company.
  • The electricity companies, which most of the time are only one in charge of supplying the entire country, or at smallest a large part of it

Conclusion

A monopoly remains a dominant position of an industry or a sector by one company, excluding all viable competitors.

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