Monday, May 19, 2014

Monopoly and Its Features

Introduction
Monopoly market is one in which there is only one seller of the product having no close substitutes. The cross elasticity of demand of a monopolised product is either zero or negative. There being only one firm, producing that product, there is no difference between the firm and industry in case of monopoly. Monopoly is a price maker not the price taker.
In the words of koutsoyiannis, “Monopoly is a market situation in which there is a single seller, there are no close substitutes for commodity it produced there are barriers to entry of other firms”.
Features of Monopoly:
The various features of Monopoly are:
1. Single Seller: Under monopoly, there is a single seller selling the product. As a result, the monopoly firm and industry is one and the same thing and monopolist has full control over the supply and price of the product.
2. No Close Substitutes: The product produced by a monopolist has no close substitutes. So, the monopoly firm has no fear of competition from new or existing products. For example, there is no close substitute of electricity services.

3. Restrictions on Entry and Exit: There exist strong barriers to entry of new firms and exit of existing firms. As a result, a monopoly firm can earn abnormal profits and losses in the long run. These barriers may be due to legal restrictions like licensing or patent rights or due to restrictions created by firms in the form of cartel.
4. Price Discrimination: A monopolist may charge different prices for his product from different sets of consumers at the same time. It is known as ‘Price Discrimination’.

5. Price Maker: In case of monopoly, firm and industry are one and the same thing. So, firm has complete control over the industry output. As a result, monopolist is a price-maker and fixes its own price.