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.
- Monopoly is another extreme market structure, with the lowest level of competition as there is one big dominant firm in the market.
- Monopoly is a market structure which primarily creates negative externalities, but also can create positive externalities sometimes.
- Therefore, it is at market failure most of the time.
- The defining characteristics of a monopoly is that:
- There is one dominant firm in the market
- They have high market power
- There are high barriers to entry and exit in the market
- They produce a unique product
- Has no close substitutes
Definition
Market power
The degree to which a firm in a market is able to control its output price.
- There are two types of specific monopolies:
- Natural Monopoly (discussed in 2.11.6)
- Government-Created Monopolies
- Monopolies have very high market power:
- This means that they can determine the price in the market (price makers).
- As a result, their revenue curves are not flat and change as the output changes.
Monopolies include:
- Google as a search engine
- Royal Mail in UK postal industry
- Luxottica in eyewear industry
