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Forms of Market Structure- MONOPOLY


Pure Monopoly is the form of market organization in which there is a single seller of a commodity for which there are no close substitutes. Thus, it is at the opposite extreme from perfect competition. Monopoly may be the result of:

  • Increasing returns to scale
  • Control over the supply of raw materials
  • Patents
  • Government Franchise

Features of Monopoly

(1) A Single Seller

  • There is only one producer of a product. It may be due to some natural conditions prevailing in the market, or maybe due to some legal restriction in the form of patents, copyright, sole dealership, state monopoly, etc.
  • Since, there is only one seller; any change in supply plans of that seller can have substantial influence over the market price.
  • That is why a Monopolist is called a Price Maker, (A Monopolist’s influence on the market price is not total because the prices determined by the forces of Demand and Supply and the. Monopolist controls only the supply).

(2) No Close substitute

  • The commodity sold by the Monopolist has no close substitute available for it. Therefore, if a consumer does not want the commodity at a particular price, he is likely to get available closely similar to what he is giving up.
  • The elasticity of demand for a product since the product has no close substitutes; the demand for a product sold by a monopolist is relatively inelastic.  MONOPOLY

(3) Barriers to the entry of new firms

There are barriers to entry into industry for the new firms. It may be due to following reasons:‑

  • Ownership of strategic raw material or exclusive knowledge of production,
  • Patent Rights,
  • Government Licensing,

(4)  Natural Monopolies.

The implication of barriers to entry is that in the short run, monopolist may earn supernormal profit or losses. However, in the long run, barriers to entry ensure that a monopolistic firm earns only super normal profits.

  • Price Discrimination Price Discrimination exists when the same product is sold at different price to different buyers. A monopolist practices price discrimination to maximize profits. For example Electricity Charges in Delhi are different for Domestic users and Commercial and Industrial users. MONOPOLY
  • Abnormal Profits in the Long run Being the single seller, monopolists enjoy the benefit of higher profits in the long run.
  • Limited Consumer Choice As they are the single producer of the commodity, in the absence of any close substitute the choice for consumer is limited.
  • Price in Excess of Marginal Cost Monopolists fix the price of a commodity (per unit) higher than the cost of producing one additional unit as they have absolute control over Price Determination. MONOPOLY


Indian Economy

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