From the Greek term monkeys (“one”) and polein (“sell”), the word monopoly refers to a certain situation of market. In it, a producer or seller is the only one who exploits a good or a service, which gives it great power and gives it a privileged position.
Some examples where the term appears: “The telephone service was for years in the hands of a monopoly that charged abusive rates”, “If this company goes bankrupt, consumers will be at the mercy of a monopoly”, “The government accused the newspaper of wanting to develop a monopoly”.
A monopoly exists when in the market economy there is a single seller or producer of an element that serves to satisfy the needs of the entire sector, and it can arise in different ways: the association of several companies that are under the control of the same management (a trust); the pact between companies of the same economic sector to achieve the elimination of competitors (a poster); the treaty that grants certain sellers a monopoly on a product or sector (a seat); or the purchase or merger of companies. Some monopolies are:
Natural Monopoly It is one that is created from the demands of consumers. It arises in a fluid way and becomes the leader in the production of that item or service.This type of monopoly cannot handle prices at will, but must accept certain limits, such as: potential competition, constant competitive factor , the elasticity of the demand, the substitute factors and the law of returns.
Pure Monopoly It is what results when there is a single person or company that produces and distributes a product in a market where there are many buyers. In the real economy, this type of monopoly does not usually occur except when it is an activity that has been transferred by a public operation.
A pure monopoly is only possible when there is a single seller, this means that there are also no rivals, however, the monopolist will see his policies restricted by indirect competition and competition for goods that can replace the one he offers and contain a higher price reasonable. Finally, when a competition enters the market, the monopolist must take measures to prevent its power from diminishing.
A monopsony it is a market made up of a single buyer and many sellers. In these markets the monopsonist has to pay a higher price for the last unit of the input and on the units previously acquired. The competitor of this seller is the input market, which can be somewhat detrimental to the monopsonist’s economy. It should be noted that similar cases but where many buyers appear, are called oligopsonies.
Thanks to its power, therefore, the monopolist can control the price and the production quantity. To fix these variables, he usually does an analysis of the costs and of the market demand. This is how you decide how much you are going to produce and at what price you will finalize the commercialization.
To mention differences between a monopoly company and a competitive We can say that the former have a wider margin to establish the value of the products, on the other hand, in the face of a competitive market, prices are decided based on the market study and are immovable or in some cases the margin that can be varied on the basis of the price.
The conditions for a monopoly to exist are: that the monopolist exercises control over a resource that is essential to obtain the product; that he is the only one that possesses the technology that is needed to produce the good; have the right to develop a patent on a product and have the exclusivity of it; have a government franchise that allows the company to produce and distribute a good in a certain area.
In short, for there to be a monopoly, in the market they must not be found other goods or services that allow to replace those offered by the monopolist. This product, in short, is the only one available that the consumer has to purchase. There is no competition or possibility to contrast the quality between similar products.
We can also add that in market terminology, a good monopoly is called that which is born voluntarily, with the approval of most of the consumers and within a democratic process. In any case, a monopoly that at first glance seems good, can present anomalies that make it detrimental to the normal functioning of the market in that situation. society.