Market monopoly basically allows a seller to enjoy the privilege of becoming the kingmaker for a particular product or service as opposed to the open market. Monopolies have always been a topic of debate for their share of benefits and limitations. Nonetheless, different types of monopolies still exist where some players in the market would want to create such a situation for profits and some just need to exist.
Features of a Monopoly
- A single seller controls the market.
- There are no competing products or services that can jeopardize the monopolist's market position.
- Many buyers for the product/service.
- Seller can control the price of the product or service offered.
- Seller enjoys huge profits.
- It entirely depends on the monopolist how the business should harness the market situation.
Reasons for a Monopoly
Doing What Others Can't
When a businessman acquires resources for a product which competitors can't get, s/he enjoys a monopoly in that market.
Striving Only For Excellence
When the seller of a particular product or service conducts extensive research on a continuous basis, the best output can be made available in the market. This zeal for excellence will create a formidable gap for rivals in the same business.
When any business runs on the philosophy that is customer centric, the product/service will give excellent utilities and be most user-friendly. This strategy will make that business king of the market.
It's Only You When It's New
Maybe the product or service is newly invented and hence the technology available is reserved with that supplier that fetches him/her the dominance.
Rule of Exception
When there are enough competitors in the market, but the service provided by a company or individual is unique in every sense, to satisfy customer needs, it benefits to be a monopolist as an exception.
Types of Monopoly
The role of government also comes into picture, at times, when it prohibits the production of a particular service. Government has the power to restrict certain products and services, especially in cases where the availability of that particular service may cause severe national and international threat. Hence, the production of arms and ammunition, currency, nuclear weapons come under government purview. Such market policy is often called state monopoly. This is also called Public Monopoly.
When the government grants explicit rights to a private company or individual to be the sole seller of a particular product, and the company or individual in turn agrees upon regulating its policies and prices, the said company or individual enjoys a government-granted monopoly.
Sometimes a company provides more services than its main product by giving different brand names just to avoid the competitors in that field. Taking an example of a book seller, where books for the same subject are sold but with different publisher names just to give an illusion that they are from two different companies but the owner being the same. In such a case a company is said to be using monopolistic tactics. Or, two companies offering different products in the same market come together and reduce the competition among each other can be called a joint monopoly.
There are some commodities such as oil, gasoline that are naturally available in abundance in certain regions only. This condition is unfortunate and is difficult to control since these resources are provided by nature and the respective countries get the benefit of gaining monopoly naturally for such scarce products.
This is a kind of monopoly where only a single seller has all the resources for a particular product and does not have any other competitor in the market. This is an ideal situation, and is quite rare.
Though there is more than one company or individual in the market who serves similar product or service, there will be one player who enjoys maximum share that surpasses the reach of his/her competitors. Hence, it is termed as imperfect monopoly.
When the seller of a product has exclusive rights over the technology or process that goes behind the manufacturing of a product, it is called technological monopoly.
When a private company or individual holds the legal rights, to a product or service, in the form of a patent or copyright, it is said to be a legal monopoly.
Benefits of Monopoly
- In a monopoly, besides the seller, profits can also be enjoyed by customers, in terms of low prices for a particular product or service.
- The monopoly holder can vary the price of the same product/service for customers coming from different economical backgrounds.
- The profits earned by the monopolist are invested in research and development for a better product and service.
- The risk of product duplication is largely avoided.
Limitations of Monopoly
- Customers are not able to enjoy the benefit of choice, had there been another or equally competitive market player for the same product or service.
- Prices of products or services can be unreasonably high.
Examples of Monopolies
This is an era dominated by technological innovations, so most monopolies in the market today belong to this field. A 2011 survey conducted by a popular analyst site 24/7 Wall St, gave out interesting figures of a few monopolies in this field.
- Google enjoys the maximum market share of about 90% for search engines as compared to its competitors like Yahoo!, MSN or Bing. This makes Google a leader in the search engine business.
- Though Microsoft underwent a rough patch of anti-trust accusations in the early 2000, for violating its power of monopoly in operating systems for computers, it still enjoys a lion's share in this business. It has a share of approximately 89% as compared to its closest rival Mac OS X which has about 5% market share only, followed by Linux.
- Facebook, the most popular social networking site, holds a market share of almost 63%. With its growing popularity, it has left other such sites like MySpace, LinkedIn and Twitter far behind.
There have been mixed reactions over the benefits and limitations of market monopoly and the power its bearer holds. Nonetheless, it is said that with great power comes great responsibility. So, although monopoly gives a market command to the seller, it is important that the company or individual creates a win-win situation for itself and the consumers.