Monopoly

Monopoly

Absolute control of all sales and distribution in a market by one firm, due to some barrier to entry of other firms, allowing the firm to sell at a higher price than the socially optimal price.

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monopoly

A business that is the sole supplier of a particular good or service. Regulated monopolies, such as electric utilities, are generally restricted as to the returns they are permitted to earn. Other monopolies such as firms with unique products or services derived from patents, copyrights, or geographic location may be able to earn very high returns. Compare oligopoly.

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monopoly

Of, relating to, or being a market in which there is a single seller of a particular good or service. For example, electric utilities nearly always operate in monopoly markets. Compare monopsony.

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Monopoly

What Does Monopoly Mean?

A situation in which a single company or group owns all or nearly all of the market share for a specific type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products. According to a strict academic definition, a monopoly is a market containing a single firm.

Investopedia explains Monopoly

Monopoly is the extreme case in capitalism. Most believe that with few exceptions, the free market system does not work when there is only one provider of a good or service because there is no incentive to improve it to meet the demands of consumers. Governments attempt to prevent monopolies from arising through the use of antitrust laws. Of course, there are gray areas; for example, the granting of patents on new inventions in effect permits monopolies for a set period. The reasoning behind patents is to give innovators time to recoup what are often large research and development costs. In theory, they are a way of using monopolies to promote innovation. Another example of legal monopolies involves public monopolies set up by governments to provide essential services such as clean water and electricity.

Related Terms:
• Efficient Market Hypothesis—EMH
• Law of Demand
• Law of Supply
• Market Economy
• Oligopoly