From the Greek term monkeys ("one" ) and polein ("to sell" ), the word monopoly refers to a certain situation of market . In it, a producer or seller is the only one that exploits a good or a service, which gives it great power and gives it a privileged position.
Some examples where the term appears: "The telephone service was for years in the hands of a monopoly that charged abusive fees", "If this company goes bankrupt, consumers will be at the mercy of a monopoly", "The government accused the newspaper of wanting to develop a monopoly".
A monopoly exists when in the market economy There is only one seller or producer of an item that serves to meet the needs of the entire sector, and can arise in different ways: the association of several companies that remain under the control of the same direction (a trust ); the pact between companies of the same economic sector to achieve the elimination of competitors (a poster ); the treaty that gives certain sellers a monopoly on a product or a sector (a seat ); or the purchase or merger of companies. Some monopolies are:
Natural Monopoly It is one that is created from the demands of consumers. It emerges fluidly and becomes the leader in the production of that element or service.This type of monopoly cannot handle prices at will, but must accept certain limits, such as: a potential competition, the constant competitive factor , the elasticity of the demand , substitute factors and the law of returns.
Pure Monopoly It is what results when there is only one person or company that produces and distributes a product in a market where there are many buyers. In the real economy this type of monopoly does not usually occur except when it is an activity that has been ceded by a public operation.
A pure monopoly is only possible when there is only one seller, this means that there are also no rivals, however, the monopolist will be restricted by indirect competition and the competition of goods that can replace the one he offers and contain a higher price. reasonable. Finally, before the entry into the market of a competition, the monopolist must take measures to prevent his power from diminishing.
A monopsony It is a market formed by a single buyer and many sellers. In these markets the monopsonist has to pay a higher price for the last unit of the input and on the previously acquired units. The competitor of this seller is the market of inputs, which can mean somewhat harmful to the economy of the monopsonist. It should be noted that similar cases but where many buyers are presented, are called oligopsonies .
Thanks to its power, therefore, the monopolist can control the price and the production quantity . To set these variables, usually do an analysis of the costs and of the market demand . Thus he decides how much he will produce and at what price the marketing will take place.
To mention differences between a monopolistic and competitive company We can say that the former have a wider margin to establish the value of the products, however, before a competitive market, prices are decided based on market research and are immovable or in some cases the margin that can be varied over the price.
The conditions for the monopoly to exist are: that the monopolist exercises control over a resource that is indispensable to obtain the product; That is the only one that possesses the technology that is needed to produce the good; have the right to develop a patent on a product and have the exclusivity of it; have a government franchise that allows the company to produce and distribute a good in a given area.
In short, so that there is a monopoly, in the market should not meet other goods or services that allow replacing those offered by the monopolist. This product, in short, is the only one available for the consumer to acquire. There is no competition or possibility to contrast the quality between similar products.
We can also add that in the market terminology, it is called good monopoly to the one that is born voluntarily, with the approval of most of the consumers and within a democratic process. In any case, a monopoly that at first glance seems good, may present anomalies that make it detrimental to the normal functioning of the market in that society .