This is often the case with natural monopolies. Due to this, these scarce but essential resources are made unavailable to the potential entrants. Monopolies that first enter a market have access to resources that it may choose to keep for itself. Ownership Of Essential And Scarce Resources This is because if a competitor too decides to charge the same price for the commodity, the competitor will face losses as the cost of production for the monopolist is far lower than the competitor’s cost of production. Sometimes, a monopolist often sets the price of its product or service just above the average cost of production of the product/service.

This is often done by a monopolist to demonstrate power and pressurise potential and existing rivals. The price may be set to be extremely low – predatory pricing – in order to prevent any firm from entering the market. Strategic Pricing allows a monopolist to charge any price for their offerings. This inevitable disadvantage deters potential entrants and so, economies of scale poses as a barrier to entry. Hence, the monopolist gains a cost advantage. It is, hence, evident that the new entrant would be at a disadvantage in terms of production costs. In case a new firm tries to enter, the cost of production would be higher than that of the monopolist and the output generated would be lower than the monopolist. This is known as economies of scale.ĭue to this phenomenon, the output generated by a monopolist is large, with lesser input cost. After existing in the market for a considerable period of time, output can be generated at a larger scale with fewer input cost. When it is said that the production of a certain commodity has become efficient, it means that the firm does not have to spend large amounts on the cost of production. These essentially pose as barriers to entry to potential entrants. Several factors and strategies allow a monopoly to maintain the power that it holds in an industry.

Joint Monopoly – When two or more firms join hands in order to form a monopoly, it is referred to as a joint or a shared monopoly.īarriers to Entry: How a Monopoly Maintains its Power.Technological Monopoly – When a firm holds a technologically superior position that other firms cannot compete with, the firm is said to be a technological monopoly.Natural Monopoly – A natural monopolist enjoys or benefits from natural factors like locational advantages, locational reputation, natural talents and skill sets of the producers, etc.Legal Monopoly – A legal monopolist enjoys government approved rights like trade mark, patent, copy right, etc.Price discrimination is witnessed wherein prices may vary from region to region, or people coming from different economic backgrounds may be charged a different price, etc. Discriminating Monopoly – A discriminating monopoly is one where a single seller does not sell his product or service for a single price.

There is no price discrimination in a simple monopoly. Simple Monopoly – A simple monopoly is one in which a single seller sells its product or service for a single price.Imperfect Monopoly – The monopolist controls the entire market supply for its product as there is no close substitute, but there is a remote substitute for the product available in the market.This is possible because there is absolutely no close or remote substitute available in the market. Pure/ Absolute Monopoly – The monopolist controls the entire market supply for its product without facing any form of competition.An example of a public monopoly would be the U. These monopolies are set up for the welfare of the masses. Public Monopoly – A public monopoly is one that is owned by the government.Private Monopoly – A private monopoly is one that is owned by an individual or a group of individuals.These different types of monopolies are listed below: There exist several different types of monopolies in an economy.

Monopoly def economics