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2.11.2 Monopoly - single or dominant firm, high barriers to entry, no close substitutes

Definition

Monopoly

A market structure with one single dominant firm that has substantial control over output prices. The firm sells a unique product and is protected by high barriers to entry.

  1. Monopoly is another extreme market structure, with the lowest level of competition as there is one big dominant firm in the market.
  2. Monopoly is a market structure which primarily creates negative externalities, but also can create positive externalities sometimes.
  3. Therefore, it is at market failure most of the time.
  4. The defining characteristics of a monopoly is that:
    1. There is one dominant firm in the market
    2. They have high market power
    3. There are high barriers to entry and exit in the market
    4. They produce a unique product
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Note

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  2. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
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  4. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.
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Note

A monopoly is a market structure where a single or dominant firm controls the entire market for a unique product. This firm faces no close substitutes and is protected by high barriers to entry.

  • In a monopoly, the firm is the industry - it has complete control over supply and price.
  • Monopolies are rare in the real world but can exist in certain situations.
  • They represent the extreme end of the market structure spectrum, opposite to perfect competition.

Definition
Barriers to Entry
Obstacles that make it difficult or impossible for new firms to enter a market.

Analogy

Think of a monopoly like owning the only water well in a desert town - you control the sole source of water, and no one else can easily dig a well.