Meaning:
'Mono' means single and poly means 'seller'. Thus monopoly means single seller who has complete control over the supply of the commodity. There is no close substitute of the commodity. Due to absence of competition, monopolist is a price maker and not a price taker.
According to H.L. Ahuja, "Monopoly is said to exist when one firm is the sole producer or seller of a product which has no close substitute."
According to Chemberlin, "A monopoly refers to a single firm, which has control over the supply of a product, which has no close substitute.
Features:
1. Single seller
2. No close substitute
3. Barriers to entry
4. No distinction between firm and industry
5. Control over the market supply
6. Price maker
7. Profit maximization
8. Price discrimination
1. Single seller
In a monopoly market there is a single seller or a single producer. Under monopoly he has no rivals and he faces no competition.
2. No close substitute
There are no close substitutes for the commodity sold in the market. Likewise other firms may not produce the same product. Hence, monopolists do not face any competition.
3. Barriers to entry
Under monopoly the entry of other firm is strictly restricted. The seller has complete hold over the supply in the market. Such provision protects the monopoly powers.
4. No distinction between firm and the industry
Under monopoly there is only one seller, there is no distinction between the firm and the industry. Thus, under monopoly the firm is an industry.
5. Control over the market supply
The monopolist has complete hold over the market supply. He is a sole producer of the commodity. Therefore entry barriers such as natural, economic, technological or legal do not allow competitors to enter the market.
6. Price maker
The firm under monopoly is price maker and not the price taker. He can charge any price for the commodity as he has complete control over the supply of the product.
7. Super normal profit
The monopolist always wants to earn supernormal profit. His decision regarding the price and the level of output are guided by the profit maximization motive. Thus, sometimes at high price, he supplies the product as per the demand and sometimes he controls the supply of the product and sells the product at high prices.
8. Price discrimination
This implies charging different prices for the same product to different buyers. The monopolist succeeds in increasing his profit by adopting the technique of price discrimination.
Types of Monopoly
1. Natural monopoly
2. Public monopoly
3. Private monopoly
4. Legal monopoly
5. Simple monopoly
6. Discriminating monopoly
7. Voluntary monopoly
1. Natural monopoly
Natural monopoly emerges due to availability of natural resources. A particular type of natural resource is available, therefore that region enjoys monopoly in the product which requires that natural resource. Natural advantages like good location, old establishment, involvement of huge investment, business reputation, etc. confirm natural monopoly of many firms. e.g., tea from Assam.
2. Public monopoly
Public monopoly refers to sole ownership of the supply of goods or services by the government. Such monopoly functions with the primary motive of providing maximum welfare to the society, thus, it is also known as welfare monopoly. It is not based on profit motive. e.g., Indian Railway.
3. Private monopoly
Private monopoly refers to sole ownership of the supply of goods or services by the private firm or individual. The main objective of private monopoly is profit maximization, for e.g. Tata group and Reliance group.
4. Legal monopoly
When monopoly is created by law, it is known as legal monopoly. Legal provisions like patents, trade marks, copy rights etc. give rise to legal monopolies e.g. some producers use a particular trademark for their product and they take legal permission from the government for that brand, thus law forbids the potential competitors to imitate the design, form and shape of product. If any firm tries to violate the rights action can be taken against them e.g., Parle-G etc.
5. Simple monopoly
It is that organization which charges a simple uniform price for all consumers. There is no price discrimination among the consumers.
6. Discriminating monopoly
When different prices are charged to different customers for the same product or services, it is known as price discrimination or discriminating monopoly. e.g., a doctor or a lawyer may charge different fees to the people.
7. Voluntary monopoly
When number of big business companies acquire monopoly through voluntary agreement, business firms join together through trusts, cartels, syndicates etc. They are called joint monopolies. Mergers and amalgamations may also lead to monopoly e.g., OPEC (Oil Producing and Exporting Countries). This is also known as Joint Monopoly.
Reasons for Origin of Monopoly:
1. Patent
2. Licensing and permit given by Government
3. Ownership and control of raw material
4. If the market is too much large, no company except Government can handle the market