Characteristics of Monopoly

Monopoly symbolizes control over a product to the extent that the enterprise or individual dictates the terms of access and the markets for availability. The term is specific to a seller's market. A similar situation in the buyer's market is referred to as monopsony. Monopoly first appeared as an economics-related term in 'Politics' by Aristotle. In his work, the thinker describes the rise and fall of monopolies of olive presses.

In ancient times, common salt was responsible for natural monopolies, till the time people learned about winning sea-salt. Regions that faced scarcity of transport facilities and that of storage were most prone to notorious escalation of commodity prices and uneven distribution of daily-use products and services. The characteristics of monopoly are unique to the condition generated by intent.

Characteristics of Monopoly:

Price Control: In a monopoly, on account of a single market entity controlling supply and demand, degree of price and supply control exerted by the enterprise or the individual is greater. The absence of competition spares the monopolizing company from price pressure. Nevertheless, to evade the entry from new market participants, the company needs to regulate the set product or service price within the paradigms of the Monopoly Theorem. Monopoly has scope for entrepreneurship to make available limited goods and/or services at a higher price. The price and production decisions of such firms target profit maximizing via predetermined quantity choice. This helps to cut even on the marginal and revenue outcomes.

Increased Scope for Mergers: In a monopoly, due to the dictates of a single entity, scope for vertical and/or horizontal mergers increase. The mergers take on coercive form to effectively blot out competitors and carry on supply chain management.

Legal Sanctions: Competition laws restrict a monopoly with regards to the extent of dominant position held and exhibit of illegal and abusive behavior. This is, however, milder in the case of a government-granted monopoly. Such a legal monopoly is offered as an incentive to a risky, domestic venture.

Predatory Pricing: This feature of monopoly benefits the consumers. These are short term market gains when prices drop to meet scarce demand for the product. The suppliers and direct consumers benefit from the monopolizing company's attempt to increase sale for business marketing. This kind of pricing also helps the government to step in and address any unregulated monopoly. If the predatory pricing is not managed efficiently, the monopoly environment could be split.

Price Elasticity: With regards to the demand of the product or service offered by the monopolizing company or individual, the price elasticity to absolute value ratio is dictated by price increase and market demand. It is not uncommon to see surplus and/or a loss categorized as 'dead-weight' within a monopoly. The latter refers to gain that evades both, the consumer and the monopolist.

Lack of Innovation: On account of absolute market control, monopolies display a tendency to lose efficiency over a period of time. With a one-product-shelf-life, innovative designing and marketing techniques take a back seat.

Lack of Competition: When the market is designed to serve a monopoly, the lack of business competition or the absence of viable goods and products shrinks the scope for 'perfect competition'.

Monopoly Litigation: Lack of competition does not eliminate consumer dissatisfaction. High market share results in consumers defying increased prices and welcome new entrants to the seller's market. Competition law dictates are designed to pronounce a monopoly illegal, if found to be abusing market power via practices of exclusionary nature. The law addresses abusive conduct in the form of product tying, supply cuts, price discrimination and exploitative deals.