If you’ve played the board game you will know that monopoly is all about control and domination. You buy up as many properties as you can and then charge rent on them to make as much money as possible.
In the real world of economics, this isn’t too dissimilar from what we really mean by the term monopoly. A monopoly is a market for a particular good or service where there is one dominant seller. In order for the firm to be called a monopoly, they must have over 25% of the total market share.
Generally speaking, monopolies are thought of as bad for consumers as with so much market power they are able to limit choices and charge a higher price due to the lack of competition.
Monopolies often exist in markets where barriers to entry are high. These are obstacles which make it difficult for new firms to join a market such as high-start up costs and the need for specialist equipment and technology.
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Key terms:
Natural monopoly – where it is most efficient for only one firm to be the supplier of a good or service in a particular market.
Pure monopoly – where a market is completely dominated by one firm and there are no close substitutes.
Price maker – a producer who has enough market power to influence the price.