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Monopoly

In economics, monopoly is a market type in which a single firm competes.

Contents

Expanded Definition

Think Microsoft or your local electric or water utility company.

In this type of market there are high barriers to entry. These include:

  • Economies of scale
  • Government licensing
  • Patent rights
  • Control of a key resource by the firm

The firm operates to maximize profit. This leads to higher prices and lower output than would be the case under perfect competition.

The firm can also gather all the profit to itself by selling its product at different prices to different customers. This is called price differentiation. To some extent, oligopolies also practice this.

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