Monopoly means a market where there is only one seller of a particular good or service.
- Only one single seller in the market. There is no competition.
- There are many buyers in the market.
- The firm enjoys abnormal profits.
- The seller controls the prices in that particular product or service and is the price maker.
- Consumers don’t have perfect information.
- There are barriers to entry. These barriers many be natural or artificial.
- The product does not have close substitutes.
Advantages of monopoly
- Monopoly avoids duplication and hence wastage of resources.
- A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.
- Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly.
- Monopolies may use price discrimination which benefits the economically weaker sections of the society. For example, Indian railways provide discounts to students travelling through its network.
- Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition.
Disadvantages of monopoly
- Poor level of service.
- No consumer sovereignty.
- Consumers may be charged high prices for low quality of goods and services.
- Lack of competition may lead to low quality and out dated goods and services.