Monopoly

Monopoly means a market where there is only one seller of a particular good or service.

Characteristics
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 dont 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.

Advantages Of Monopoly
Monopolies are generally considered to have disadvantages. However, in certain circumstances monopolies can have various advantages for consumers and social welfare.

Advantages of Monopoly
Research and Development. Monopolies can make supernormal profit; this can be used to fund high cost capital investment spending. Successful research can be used for improved products and lower costs in the long term. This is important for industries like telecommunications, aeroplane manufacture

and Pharmaceuticals. Without monopoly power that a patent gives, there may be less development of medical drugs. Economies of scale. Increased output will lead to a decrease in average costs of production. These can be passed on to consumers in the form of lower prices. See: Economies of Scale This is important for industries with high fixed costs, such as tap water and steel production.

If a monopoly produces at output Q1, average costs (AC 1) are much lower than if a competitive market had firms producing at Q2 (AC 2). See also: natural monopolies - where the most efficient number of firms is one. International Competitiveness. A domestic firm may have Monopoly power in the domestic country but face effective competition in global markets. E.g. British Steel. Monopolies Successful Firms. A firm may become a monopoly through being efficient and dynamic. A monopoly is thus a sign of success not inefficiency. For example - Google has gained monopoly power through being regarded as best firm for search engines.

advantages of monopoly 1 no risk of over prodution 2 there is enough capital for reseach 3 reduction in price of good 4 efficiently use of resourses

5 control over entire market 6 others are price takers 7 only producer of a particular product or service disadvantages of monopoly 1 exploitation of consumers 2 restriction of consumers choice 3 absence of competition leads to inefficiency 4 increase in price of product 5 expoitation of labor i.e when price is greater than marginal cost.