Monopoly | Characteristics of Monopoly | Advantages & Disadvantages of Monopoly

Monopoly

The word monopoly has been derived from the combination of two words i.e. ‘Mono’ and ‘Poly.’ Mono refers to a single and poly refers to control. In this way, monopoly refers to a market situation in which there is only one seller of a commodity, there are no close substitutes for the commodity it produces and there are barrier to entry. The single producer may be in the form of individual owner or a single partnership or joint stock company.

Characteristics of Monopoly

1. Only one single seller in the market. There is no competition.

2. There are many buyers in the market

3. The firm enjoys abnormal profits

4. The seller controls the price in that particular product or service and is the price maker

5. Consumers don’t have perfect information

6. They are barrier to entry these barriers may natural or artefact

Advantages of Monopoly

1. Monopoly avoids duplication and hence wastage of resources

2. A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.

3. Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly

4. Monopolies may use price discrimination which benefits the economically weaker section of the society

5. Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition

Disadvantages of Monopoly

1. Poor level of service

2. No consumer sovereignty

3. Consumers may be charged high price for low quality of goods and services

4. Lack of competition may lead to low quality and out dated goods and services.