What is Monopoly ? Meaning and Concept
The term monopoly is derived from Greek words 'mono' which means single and 'poly' which means seller. So, monopoly is a market structure, where there only a single seller producing a product having no close substitute.
This single seller may be in the form of an individual owner or a single partnership or a Joint Stock Company. Such a single firm in market is called monopolist. Monopolist is price maker and has a control over the market supply of goods. But it does not mean that he can set both price and output level. A monopolist can do either of the two things i.e. price or output. It means he can fix either price or output but not both at a time.
Characteristics / Features of Monopoly
Following are the features or characteristics of Monopoly :-
- A single seller has complete control over the supply of the commodity.
- There are no close substitutes for the product.
- There is no free entry and exit because of some restrictions.
- There is a complete negation of competition.
- Monopolist is a price maker.
- Since there is a single firm, the firm and industry are one and same i.e. firm coincides the industry.
- Monopoly firm faces downward sloping demand curve. It means he can sell more at lower price and vice versa. Therefore, elasticity of demand factor is very important for him.
Classification / Kinds / Types of Monopoly
1. Perfect Monopoly
It is also called as absolute monopoly. In this case, there is only a single seller of product having no close substitute; not even remote one. There is absolutely zero level of competition. Such monopoly is practically very rare.
2. Imperfect Monopoly
It is also called as relative monopoly or simple or limited monopoly. It refers to a single seller market having no close substitute. It means in this market, a product may have a remote substitute. So, there is fear of competition to some extent e.g. Mobile (Cellphone) telcom industry (e.g. vodaphone) is having competition from fixed landline phone service industry (e.g. BSNL).
3. Private Monopoly
When production is owned, controlled and managed by the individual, or private body or private organization, it is called private monopoly. e.g. Tata, Reliance, Bajaj, etc. groups in India. Such type of monopoly is profit oriented.
4. Public Monopoly
When production is owned, controlled and managed by government, it is called public monopoly. It is welfare and service oriented. So, it is also called as 'Welfare Monopoly' e.g. Railways, Defence, etc.
5. Simple Monopoly
Simple monopoly firm charges a uniform price or single price to all the customers. He operates in a single market.
6. Discriminating Monopoly
Such a monopoly firm charges different price to different customers for the same product. It prevails in more than one market.
7. Legal Monopoly
When monopoly exists on account of trade marks, patents, copy rights, statutory regulation of government etc., it is called legal monopoly. Music industry is an example of legal monopoly.
8. Natural Monopoly
It emerges as a result of natural advantages like good location, abundant mineral resources, etc. e.g. Gulf countries are having monopoly in crude oil exploration activities because of plenty of natural oil resources.
9. Technological Monopoly
It emerges as a result of economies of large scale production, use of capital goods, new production methods, etc. E.g. engineering goods industry, automobile industry, software industry, etc.
10. Joint Monopoly
A number of business firms acquire monopoly position through amalgamation, cartels, syndicates, etc, it becomes joint monopoly. e.g. Actually, pizza making firm and burger making firm are competitors of each other in fast food industry. But when they combine their business, that leads to reduction in competition. So they can enjoy monopoly power in market.