![]() ![]() The monopolist firms strive to earn abnormal (or supernormal) profits. This is the major reason a monopolist firm wants to continue enjoying its monopoly. The monopolist firm aims to maximize its profits owing to no rivalry and lack of consumer choices. The features of a monopoly are listed as follows: Public monopolies are created when the government nationalizes certain industries to serve the interest of the people. The presence of a sole supplier is considered to be more reliable and beneficial for the general public.The costs associated with production and deliveries are too high.The government creates such monopolies for the following reasons: #5 – Public or industrial monopolyĪ public monopoly is set up by the government to supply important products and services. ![]() Patents allow time to firms to recover the high costs of development and research. Since the monopolist is the inventor of such a product (or process), it is the exclusive supplier in the market. #4 – Legal monopolyĪ legal monopoly is one wherein the monopolist firm reserves the right to manufacture a product by way of a patent, trademark or copyright. In addition, such firms usually provide public utilities (like electricity, gas, etc.), adhere to government regulations, and incur high costs on research and innovation. In this, the monopolist firm utilizes its copyright and patents to prevent competition. #3 – Natural monopolyĪ natural monopoly depends on unique raw materials or sophisticated technology to manufacture its products. Moreover, competitors are discouraged from entering the market often due to high initial costs. #2 – Pure monopolyĪ pure monopoly is the rarest form wherein the product (or service) being sold has no close substitutes. In this, the monopolist firm usually operates in one market and its consumers are price takers. The different types of monopolies are discussed as follows: #1 – Simple monopolyĪ simple monopoly charges uniform prices for its product (or service) from all the buyers. Due to these practices, a monopoly may be dissolved sooner or later. Monopolies can often lead to unfair trade practices like charging different prices from different consumers ( price discrimination), setting prices far above the costs of manufacturing, selling inferior products and services, etc. This implies that the consumer has no choice but to purchase from the monopolist firm. There is an absence of the availability of close substitutes.Moreover, the established firm can produce the products at low prices while the new entrants cannot do this initially. This implies that it is difficult to enter the market as the consumers prefer the products of the established firm over those of the new entrants. Additionally, there are barriers to the entry of new firms. There is a lack of competition in the market.This domination makes the monopolist firm a price setter (or price maker) rather than a price taker. ![]() ![]()
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