The term monopoly (from Greek monos , alone or single + polein , to sell) can bear two main definitions:

1. In Economics, monopoly (also "Pure oligopoly") exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Greek (el ελληνική γλώσσα or simply el ελληνικά — "Hellenic" is an Indo-European language, spoken today by 15-22 million people mainly Economics is the social science that studies the production distribution, and consumption of goods and services. ^[1] Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. Competition is a rivalry between individuals groups nations or animals for territory or resources A service is the non-material equivalent of a good. A service provision is an economic activity that does not result in Ownership, and this is what differentiates In Economics, one kind of good (or service is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of ^[2] Alternatively (a modern and less common usage), it may be used as a verb or adjective to refer to the process (see Monopolism) by which a firm gains persistently greater market share than what is expected under perfect competition. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. The latter usage of the term is invoked in the theory of monopolistic competition. Monopolistic competition is a common Market form. Many markets can be considered monopolistically competitive often including the markets for Restaurants, Cereal
2. In political discourse, the term monopoly is frequently invoked as a blanket generalization in criticism of firms with large market share or lack of what's perceived as "fair" competition. Politics Politics is the process by which groups of people make decisions Market share, in Strategic management and Marketing, is the percentage or proportion of the total available Market or Market segment that is Competition is a rivalry between individuals groups nations or animals for territory or resources ^[3]

The latter usage of the term is more predominant among non-economists than economists and while its assertions may hold true, it is not based upon the definition of "monopoly," used by economists.

A monopoly should be distinguished from monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control of a sector of a market. In Economics, a monopsony (from Ancient Greek μόνος (monos "single" + ὀψωνία (opsōnia "purchase" is a Market form Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve An oligopoly is a Market form in which a Market or Industry is dominated by a small number of sellers (oligopolists

A government-granted monopoly or legal monopoly is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic constituency. In Economics, a government-granted monopoly (also called a "de jure monopoly" is a form of Coercive monopoly by which a government grants exclusive privilege An interest group (also advocacy group, lobby group, pressure group or special interest group) is an organized collection of people who seek The government may also reserve the venture for itself, thus forming a government monopoly. In Economics, government monopoly (or public monopoly) is a form of Coercive monopoly in which a Government agency is the sole provider of a

Contents 1 Economic analysis 1.1 Price setting for unregulated monopolies 1.1.1 Calculating monopoly output 1.2 Monopoly and efficiency 1.2.1 Negative aspects 1.2.2 Positive aspects 1.2.3 Hotelling's law 2 The "natural monopoly" problem 3 Historical monopolies 3.1 Examples of alleged and legal monopolies 4 See also 5 Notes and references 6 Further reading 7 External links 7.1 Criticism

Economic analysis

• No close substitutes: A monopoly is not merely the state of having control over a product; it also means that there is no real alternative to the monopolised product.
• A price maker: Because a single firm controls the total supply in a pure monopoly, it is able to exert a significant degree of control over the price by changing the quantity supplied.

Other common assumptions in modeling monopolies include the presence of multiple buyers (if a firm is the only buyer, it also has a monopsony), an identical price for all buyers, and asymmetric information. In Economics, a monopsony (from Ancient Greek μόνος (monos "single" + ὀψωνία (opsōnia "purchase" is a Market form In Economics and Contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better Information

A company with a monopoly does not undergo price pressure from competitors, although it may face pricing pressure from potential competition. If a company raises prices too high, then others may enter the market if they are able to provide the same good, or a substitute, at a lower price. ^[4] The idea that monopolies in markets with easy entry need not be regulated against is known as the "revolution in monopoly theory"^[5].

A monopolist can extract only one premium, and getting into complementary markets does not pay. That is, the total profits a monopolist could earn if it sought to leverage its monopoly in one market by monopolizing a complementary market are equal to the extra profits it could earn anyway by charging more for the monopoly product itself.

However, the one monopoly profit theorem does not hold true if there exist:

• Stranded customers in the monopoly good.
• Poorly informed customers.
• High fixed costs in the tied good.
• Economies of scale in the tied good.
• Price regulations for the monopoly product

Price setting for unregulated monopolies

In economics, a firm facing the entire market demand curve is said to have monopoly power. In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium In Economics, the demand curve can be defined as the graph depicting the relationship between the price of a certain Commodity, and the amount of it that This is in contrast to a price-taking firm, which operates in a negligible segment of the overall market and thus faces a demand curve with infinite price elasticity. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. In Economics, elasticity is the ratio of the percent change in one variable to the percent change in another variable The pricing and production choices made by these firms follow identical decision rules. That is, regardless of the type of firm, the profit maximizing price and quantity choice will equate the marginal cost and marginal revenue of production (see diagram). In Economics and Finance, marginal cost is the change in Total cost that arises when the quantity produced changes by one unit In Microeconomics, Marginal Revenue ( MR) is the extra revenue that an additional unit of product will bring The key difference is in the outcome of such a rule: typically a monopoly selects a higher price and lower quantity than a price-taking firm.

There are important points for one to remember when considering the monopoly model diagram (and its associated conclusions) displayed here. The result that monopoly prices are higher, and production output lower, than a competitive firm follow from a requirement that the monopoly not charge different prices for different customers. That is, the monopoly is restricted from engaging in price discrimination. Price discrimination exists when sales of identical goods or services are transacted at different Prices from the same provider If the monopoly were permitted to charge individualized prices, the quantity produced, and the price charged to the marginal customer, would be identical to a competitive firm, thus eliminating the deadweight loss. In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium

As long as the price elasticity of demand for most customers is less than one in absolute value, it is advantageous for a firm to increase its prices: it then receives more money for fewer goods. In Economics and business studies the price elasticity of demand (PED is a measure of the sensitivity of quantity demanded to changes in price In Mathematics, the absolute value (or modulus) of a Real number is its numerical value without regard to its sign. With a price increase, price elasticity tends to rise, and in the optimum case above it will be greater than one for most customers. The following formula gives the relation among price, marginal cost of production and demand elasticity that maximizes a monopoly profit: where (e) is the elasticity of demand. A monopoly's power is given by the vertical distance between the point at which the marginal cost curve (MC) intersects with the marginal revenue curve (MR) and the demand curve. The longer the vertical distance, (i. e. , the more inelastic the demand curve) the greater the monopoly's power, and thus, the larger its profits.

Calculating monopoly output

The single price monopoly profit maximization problem is as follows:

The monopoly profit is its total revenue less its total cost. Let the price it sets as a market response be a function of the quantity it produces (Q) P(Q) and let its cost function be as a function of quantity C(Q). The monopoly's revenue is the product of the price and the quantity it produces. Hence its profit is:

Taking the first order derivative with respect to quantity yields:

Setting this equal to zero for maximization:

hkj i. e. marginal revenue = marginal cost, provided

(the rate of marginal revenue is less than the rate of marginal cost, for maximization).

This procedure assumes that the monopolist knows the exact demand function. ^[6]

Monopoly and efficiency

According to standard economic theory (see analysis above), a monopoly will sell a lower quantity of goods at a higher price than firms would in a purely competitive market. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. The monopoly will secure monopoly profits by appropriating some or all of the consumer surplus. In Economics, a firm is said to reap monopoly profits when a lack of viable market Competition allows it to set its Prices above the equilibrium The term surplus is used in Economics for several related quantities Since the loss in consumer surplus is higher than the monopolist's gain, this creates deadweight loss, which is inefficient and a form of market failure. In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium Economic efficiency is used to refer to a number of related concepts Market failure is a concept within economic theory wherein the allocation of goods and services by a Free market is not efficient.

Negative aspects

It is often argued that monopolies tend to become less efficient and innovative over time, becoming "complacent giants", because they do not have to be efficient or innovative to compete in the marketplace. Sometimes this very loss of efficiency can raise a potential competitor's value enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives. The theory of contestable markets argues that in some circumstances (private) monopolies are forced to behave as if there were competition because of the risk of losing their monopoly to new entrants. In Economics, a contestable market is a Market served by only one firm but with mandated "competitive" pricing so as to escond the Monopoly This is likely to happen where a market's barriers to entry are low. In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market It might also be because of the availability in the longer term of substitutes in other markets. For example, a canal monopoly, while worth a great deal in the late eighteenth century United Kingdom,was worth much less in the late nineteenth century because of the introduction of railways as a substitute. Canals are artificial channels for water There are two types of canals water conveyance canals which are used for the conveyance and delivery of water and Waterways The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located "Railroad" and "Railway" both redirect here For other uses see Railroad (disambiguation.

Positive aspects

Some argue that it can be good to allow a firm to attempt to monopolize a market, since practices such as dumping can benefit consumers in the short term; and once the firm grows too big, it can be dealt with via regulation. In economics " dumping " can refer to any kind of Predatory pricing. This article is for the legal term For regulation of genes see Regulation of gene expression. When monopolies are not broken through the open market, often a government will step in, either to regulate the monopoly, turn it into a publicly owned monopoly, or forcibly break it up (see Antitrust law). Public utilities, often being natural monopolies and less susceptible to efficient breakup, are often strongly regulated or publicly owned. A public utility (usually just utility) is an organization that maintains the Infrastructure for a public service (often also providing a service using AT&T and Standard Oil are debatable examples of the breakup of a private monopoly. Before proposing a merge request please see Talk and see if the merger you propose has recently been made and Standard Oil was a predominant American integrated oil producing transporting refining and marketing company When AT&T was broken up into the "Baby Bell" components, MCI, Sprint, and other companies were able to compete effectively in the long distance phone market and began to take phone traffic from the less efficient AT&T. MCI Communications Corp was an American Telecommunications company that was instrumental in legal and regulatory changes that led to the breakup of the AT&T Sprint Nextel Corporation ( is a Telecommunications company based in Overland Park, Kansas.

Hotelling's law

Mathematician Harold Hotelling came up with Hotelling's law which showed that there exist cases where monopoly has advantages for the consumer. Harold Hotelling ( Fulda Minnesota, September 29, 1895 &ndash December 26, 1973) was a mathematical statistician and very influential Not to be confused with Hotelling's rule. Hotelling's law is an observation in Economics that in many markets it is Rational If there is a beach where customers are distributed evenly along it, an entrepreneur setting up an ice cream stand would naturally place it in the middle of the beach. A competing ice cream seller would do best to place his competing ice cream stand next to it to gain half the market share, but two stalls right next to each other is not an ideal situation for the people on the beach. A monopolist who owns both stalls on the other hand, would distribute his ice cream stalls some distance apart. ^[7]

The "natural monopoly" problem

A natural monopoly is defined as a theoretical situation in which production is characterized by falling long-run marginal cost throughout the relevant output range. Natural monopoly is a term used in Economics to refer to two different things In Economics and Finance, marginal cost is the change in Total cost that arises when the quantity produced changes by one unit In such situations, a policy of laissez-faire must result in a single seller. Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” The conventional Paretian solution to market failure of this kind is public regulation (in the United States) or public enterprise (in the United Kingdom). The United States of America —commonly referred to as the A government-owned corporation, state-owned enterprise or government business enterprise is a legal entity created by a Government to undertake commercial The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located

Historical monopolies

Common salt (sodium chloride) historically gave rise to natural monopolies. For sodium chloride in the diet see Salt. Sodium chloride, also known as common salt, table salt, or Halite, is a Until recently, a combination of strong sunshine and low humidity or an extension of peat marshes was necessary for winning salt from the sea, the most plentiful source. Changing sea levels periodically caused salt "famines" and communities were forced to depend upon those who controlled the scarce inland mines and salt springs, which were often in hostile areas (the Dead Sea, the Sahara desert) requiring well-organized security for transport, storage, and distribution. A famine is a widespread shortage of food that may apply to any Faunal species which phenomenon is usually accompanied by regional Malnutrition, Starvation The Dead Sea (יָם הַ‏‏מֶ‏ּ‏לַ‏ח, "Sea of Salt"البَحْر المَيّت, "Dead Sea" is a salt lake between The Sahara (الصحراء الكبرى aṣ-ṣaḥrā´ al-kubra, "The Great Desert" is the world's largest hot Desert and the world's second largest The "Gabelle", a notoriously high tax levied upon salt, played a role in the start of the French Revolution, when strict legal controls were in place over who was allowed to sell and distribute salt. The following article is about a Tax. If you are looking for information about a literary character see A Tale of Two Cities. The French Revolution (1789–1799 was a period of political and social upheaval in the History of France, during which the French governmental structure previously an

Examples of alleged and legal monopolies

• The salt commission, a legal monopoly in China formed in 758. The Salt Commission was an organization in Tang China used to raise Tax revenue from the state Monopoly of the Salt trade
• British East India Company; created as a legal trading monopoly in 1600. The Honourable East India Company ( HEIC) referred to most commonly as the East India Company, also historically and colloquially as John Company, or
• Dutch East India Company; created as a legal trading monopoly in 1602. The Dutch East India Company ( Vereenigde Oost-Indische Compagnie or VOC in old-spelling Dutch, literally "United East Indian
• U.S. Steel; anti-trust prosecution failed in 1911. The United States Steel Corporation ( is an integrated Steel producer with major production operations in the United States, Canada, and Central Europe
• Standard Oil; broken up in 1911. Standard Oil was a predominant American integrated oil producing transporting refining and marketing company
• National Football League; survived anti-trust lawsuit in the 1960s, convicted of being an illegal monopoly in the 1980s. The National Football League ( NFL) is the largest professional American football league.
• Major League Baseball; survived U. S. anti-trust litigation in 1922, though its special status is still in dispute as of 2008.
• United Aircraft and Transport Corporation; aircraft manufacturer holding company forced to divest itself of airlines in 1934. The United Aircraft and Transport Corporation was formed in 1929, when William E
• American Telephone & Telegraph; telecommunications giant broken up in 1982. Before proposing a merge request please see Talk and see if the merger you propose has recently been made and
• Microsoft; settled anti-trust litigation in the U. Microsoft Corporation is an American multinational Computer technology Corporation, which rose to dominate the Home computer S. in 2001; fined by the European Commission in 2004, which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The European Commission (formally the Commission of the European Communities) is the executive branch of the European Union. The European Court of First Instance, created in 1989 is a court of the European Union. The European Community (EC is one of the Three pillars of the European Union (EU created under the Maastricht Treaty (1992 The fine was 1. 35 Billion USD in 2008 for incompliance with the 2004 rule. ^[8][9]
• De Beers; settled charges of price fixing in the diamond trade in the 2000s. De Beers and the various companies within the De Beers Family of Companies engage in exploration for diamonds, diamond mining diamond trading and industrial diamond manufacture
• Joint Commission; has a monopoly over whether or not US hospitals are able to participate in the Medicare and Medicaid programs. The Joint Commission is a private sector United States -based non-profit organization. This article refers to Medicare, a United States health insurance program Medicaid is the United States health program for eligible individuals and families with low incomes and resources
• Telecom New Zealand; local loop unbundling enforced by central government. Telecom New Zealand () is a Wellington, New Zealand -based Telephone company and through its subdivision Xtra, an Internet service Local loop unbundling ( LLU) is the regulatory process of allowing multiple Telecommunications operators use of connections from the Telephone exchange 's
• Monsanto has been sued by competitors for anti-trust and monopolistic practices. The Monsanto Company ( is a multinational Agricultural biotechnology Corporation. They hold between 70% and 100% of the commercial seed market.

See also

Market forms

• Monopolistic competition
• Complementary monopoly
• Duopoly
• Triopoly
• Monopsony
• Bilateral monopoly
• Oligopoly

Types

• Cartel
• Natural monopoly
• Monopolies of knowledge

Proposed benefits

• The Long Tail
• Economies of scale

Monopolistic practices

• Dumping
• Predatory pricing
• Price discrimination
• Zone pricing

Simulation of Monopoly Market

• Beat The Market

General

• Creative destruction
• Free market
• List of economics topics
• Perfect competition
• Competition regulator

Notes and references

Further reading

• Guy Ankerl, Beyond Monopoly Capitalism and Monopoly Socialism. Cambridge,Mass. : Schenkman Pbl. , 1978. ISBN0870739387
• Impact of Antitrust Laws on American Professional Team Sports

External links

• Monopoly: A Brief Introduction by The Linux Information Project
• Monopoly by Elmer G. Wiens: Online Interactive Models of Monopoly (Public or Private) and Oligopoly
• Monopoly Profit and Loss by Fiona Maclachlan and and Natural Monopoly by Seth J. Chandler, The Wolfram Demonstrations Project.

Criticism

• Natural Monopoly and Its Regulation
• The Myth of the Natural Monopoly
• Natural Monopoly and Its Regulation
• From rulers' monopolies to users' choices A critical survey of monopolistic practices

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