Monopoly : Meaning and Kinds | Managerial Economics

Let us make an in-depth study of monopoly:- 1. Meaning and Definition of Monopoly 2. Kinds of Monopoly.

Meaning and Definition of Monopoly:

“Monopoly is made of two words—’Mono’ and ‘Poly’. ‘Mono’ means single and ‘Poly’ means seller. Thus, ‘Monopoly refers to a market situation where one firm or a group of firms which are combined to have a control over the supply of the product. ”

In other words, Monopoly is a market situation in which there is only one seller of a product with barriers to entry of others.

The product has no close substitutes. The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product. Thus, the Monopoly firm is itself an industry and the monopolistic faces the industry demand curve.

Definition:

(1) Monopoly may be defined as that – “Market form in which a single producer controls the whole supply of a single commodity which has no close substitutes.”

Thus, there are the following three essential conditions to constitute as Monopoly:

1. Single Producer or Seller:

There must be a single producer or seller. He may be an individual or a firm of partners or a joint stock company. This condition is essential to eliminate competition.

2. Absence of Close Substitutes:

The commodity dealt in should have no closely competition substitutes. That is, there should be no other firm or firms producing similar products, otherwise there will be competition.

3. Barriers to the Entry of New Firm:

There must be strict barriers to the entry of new firms either in the market or to do production.

Those three conditions ensure that the monopolist can set the price of his commodity i.e., he can pursue an independent price output policy.

Power to influence price is the essence of Monopoly.

2. According to Prof. Donald Dewey – “Monopoly is the control of the sale of a commodity by a single seller who does not fear the entry of other firms into his market.”

The above definition of Prof. Donald Dewey, Monopoly requires the presence of two conditions:

(i) Control of output by a single seller, and

(ii) Blocked entry by other firms.

There are, of course many instances in the real world where a commodity is sold by only one firm
in a particular area or locality. But this example of apparent Monopoly must not be confused with the pure Monopoly. It is possible that the locality cannot support two similar shops. If our local seller charges higher prices, it is possible that the people may buy the product from nearly areas and may bear the transportation costs. In the case the Monopoly of the local seller is weeded out.

3. According to Prof. A. Koutsoylaunis – “Monopoly is the control of the sale of a commodity by a single seller who does not fear the entry of other firms into his market.”

Characteristics:

Important characteristics of the Monopoly market are as follows:

1. There is only one seller in the market and the products are homogeneous.

2. The product produced by the monopolist has no close substitutes.

3. The firm is the price-maker and not price taker i.e., the firm can sell more at lower price and less at higher price.

4. Monopolist is guided by the motive of profit maximisation either by raising price or by expanding the scale of production. Much would depend on his business objectives.

5. There are many buyers on the demand side but none is in a position to influence the price of the product by his individual action. Thus, the price of the product is given for the consumer.

6. The monopolist treats all consumers alike and charges a uniform price for his product.

7. The monopoly price is uncontrolled. There are no restrictions on the power of the monopolist.

Kinds of Monopoly:

Monopoly is of following kinds:

1. Simple Monopoly and Discriminating Monopoly:

A simple monopoly firm charges a uniform price for its output sold to all the buyers. While a discriminating monopoly firm charges different prices for the same product to different buyers. A simple monopoly operates in a single market a discriminating monopoly operates in more than one market.

2. Pure Monopoly and Imperfect Monopoly:

Pure monopoly is that type of monopoly in which a single firm which controls the supply of a commodity which has no substitutes not even a remote one. It possesses an absolute Monopoly power. Such a Monopoly is very rare. While imperfect monopoly means a limited degree of Monopoly. It refers to a single firm which produces a commodity having no close substitutes. The degree of Monopoly is less than perfect in this case and it relates to the availability of the closeness of a substitute. In practice, there are many cases of such imperfect monopoly.

3. Natural Monopoly:

When a Monopoly is established due to natural causes then it is called natural monopoly. To-day India has got Monopoly in mica production and Canada has got Monopoly in nickel production. These Monopoly natures has provided to these countries.

4. Legal Monopoly:

When anybody receives or acquires Monopoly due to legal provisions in the country.

For Example:

When legal monopolies emerge on account of legal provisions like patents, trade-marks, copyrights etc. The law forbids the potential competitors to imitate the design and form of products registered under the given brand names, patent or trade-marks. This is done to safeguard the interests of those who have done much research and undertaken risks of innovating a particular product.

5. Industrial Monopolies or Public Monopolies:

In the general interest of the nation, when a government nationalizes certain industries in the public sector, whereby industrial or public monopolies are created. The Industrial Policy Resolution 1956, in India, for instance, categorically lays down that certain fields like arms and ammunition, atomic energy, railways and air transport will be the sole monopoly of the Central Government. In this way industrial monopolies are created through statutory measures.