A monopoly is a special type of market where one company has all the power. Here are the main features that define a monopoly:
One Seller: In a monopoly, there is only one company that sells a specific good or service. This means they are the only option for customers. For example, think about a local water company. They are the only choice for people in that area when it comes to getting water.
Control Over Prices: Unlike companies in a competitive market, a monopoly can set the price of their product. Since there are no other options, the monopolist can decide how much to charge based on what customers are willing to pay. For example, if a drug company makes a special medicine that no one else can make, they can charge a lot for it because there are no alternatives.
High Barriers to Entry: Monopolies often happen in situations where it’s really hard for new companies to start up. This could be because it costs a lot of money to get going, the company owns important resources, or there are rules that protect the monopoly. For instance, in some places, the government allows only one postal service so that no one else can compete with them.
No Close Substitutes: In a monopoly, the product sold has no similar alternatives. This means customers depend on the monopolist for what they need. A good example would be a unique gadget that can’t be found anywhere else.
Knowing these features helps explain why monopolies can create problems in the market and affect what choices consumers have.
A monopoly is a special type of market where one company has all the power. Here are the main features that define a monopoly:
One Seller: In a monopoly, there is only one company that sells a specific good or service. This means they are the only option for customers. For example, think about a local water company. They are the only choice for people in that area when it comes to getting water.
Control Over Prices: Unlike companies in a competitive market, a monopoly can set the price of their product. Since there are no other options, the monopolist can decide how much to charge based on what customers are willing to pay. For example, if a drug company makes a special medicine that no one else can make, they can charge a lot for it because there are no alternatives.
High Barriers to Entry: Monopolies often happen in situations where it’s really hard for new companies to start up. This could be because it costs a lot of money to get going, the company owns important resources, or there are rules that protect the monopoly. For instance, in some places, the government allows only one postal service so that no one else can compete with them.
No Close Substitutes: In a monopoly, the product sold has no similar alternatives. This means customers depend on the monopolist for what they need. A good example would be a unique gadget that can’t be found anywhere else.
Knowing these features helps explain why monopolies can create problems in the market and affect what choices consumers have.