ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel


Updated on March 9, 2011

Monopoly is a market structure that exists when there is a single producer or seller of a commodity that has no close substitutes. In fact monopoly exists when an industry is in the hands of one producer. In the case of perfect competition, there are so many individual producers that no one of them has any power whatsoever over the market. A monopolist on the other hand has power to influence the market price. Since the monopolist is the only producer of its product within its area of operation, it faces the market demand curve which slopes downwards from left to right. For this reason, the monopolist has control over either price or output but not both at the same time in the sense that if the monopolist fixes the price, the consumer determines what quantity to buy. If the monopolist produces and supplies a certain quantity, the consumers demand determines the price at which that quantity can be sold (through the consumers’ demand). Whereas the firm selling in a perfectly competitive market is a price-taker, a monopoly firm is a price-setter.


A monopolist is a sole supplier of a good for which no close substitutes exist, and can exclude competitors. The monopolist’s control over the supply of a commodity may be either in its production or sale. The conditions that make monopoly possible are the sources of its power. These are:-

i. Natural Monopoly

When a producer has control over the source of raw material or owns the raw materials used to produce a particular commodity, other competitors cannot have access to it. This means the owner of the raw material can use it in production to enjoy monopoly power. A similar product can therefore not be produced to compete with the monopolist.

ii. Legal Monopoly

These are of two forms:

a. Statutory Monopoly

This is the type of monopoly which is instituted by an Act of Parliament in democratic states. Providers of utility services such as water and electricity are usually statutory monopolies. The government regulates such companies by controlling the prices they are allowed to charge. The government may also choose to supply the commodity involved by itself. With the establishment of such monopolies, competition is eliminated sectors. This is to avoid efforts being duplicated as this could lead to scarce resources being wasted.

b. Patent right and copyright

This is another type of legal monopoly. When a firm invents in a technique of producing a product, the patent law gives that inventor exclusive control in the use of the invented means of production. This makes competition virtually impossible because no other person or group of people can use this means of production. Production will therefore be restricted and the inventor enjoys monopoly power. A copyright may be given to authors and musicians to protect them from having their work copied by other people.

iii. Collusive Monopoly

Firms may sometimes decide to come together to form a stronger unified force, so that the reaping of supernormal profit becomes much easier than when they compete among themselves. Firm sometimes enter into collusion this way in order to drive away potential competitors. In this regard, a strong monopoly is formed that can determine the price and output of the product. For example the main oil- producing nations belong to OPEC – Organization of Petroleum Exporting Countries, who decides the price of oil, due to the monopoly power it has in the supply of oil. Between 1973 and 1974, the organization increased price of oil from $2.90 to $9.00 per barrel. There was another sharp increase between 1978 and 1980 from $12 to $30 per barrel.

iv. Large Scale Production

Monopolies may also arise because of economies of scale. The established firms may retain a monopoly through a cost advantage because it can produce at a lower cost than any other smaller potential competitor could.

v. Market Franchise

A market franchise is a right granted a business firm by a governmental unit to produce or market a particular commodity with an instituted trade mark. The firm must submit to the governmental unit so that it controls certain aspect of the firms’ market operations. The franchise enables the firm to become a monopolist, as it becomes the single producer or distributor of the commodity within its area of operation.

vi. Technology and capital needed

Where there is need for an exclusive technology to be able to produce a particular commodity, only firms with the know-how can engage in the production of such a good. For example only a few firms have the technology to manufacture aircraft in the world. Sometimes monopoly power is enjoyed by already established firms because the capital requirement in setting up the industry is huge. This makes it almost impossible for potential competitors to obtain the needed capital to invest in similar type of business.


    0 of 8192 characters used
    Post Comment
    • profile image

      Brian Saitoti 

      2 years ago

      It is helpful and also resourceful.Thanks for your support

    • profile image

      Olivia bea 

      4 years ago

      Its nice and helpful.....thankkkkkks much

    • profile image

      ayichalim liju 

      4 years ago

      by this condition we can continue agood learning and teaching process from our teachers.

    • profile image


      4 years ago

      simplified n very well explained..great job

    • profile image

      innocent ndungi kioli 

      5 years ago

      nc work bt make it more simble to understand

    • profile image

      james abraham pio 

      5 years ago

      so nice

    • profile image

      Evanso Tonui 

      7 years ago

      Despite the fact that monopolies are disadvantageous to the consumers,their advantage out-way it because they drive not only the economy of a country but also the other countries in the world. These eradicate poverty in developing countries.

    • profile image


      8 years ago

      This is wonderful

    • Chrisagbe profile imageAUTHOR


      9 years ago

      American_Choices, thank you very much for your kind words, contribution, and observation. I absolutely agree with you that the dominance created from goodwill is an item of monopoly power source. Indeed monopolies are harmful to consumers because of the tendency to exploit consumers and also distort consumer sovereignty. Thanks again.

    • American_Choices profile image


      9 years ago from USA

      Large Scale Production or the obstacles to entrance is an item that often is overlooked. Very well written summary of the underlying causes of monopoly power.

      The dominance created from goodwill is an item that I feel is another form of monopoly power. We have been "sold" on the perceived value and refuse other supplies.

      Monopolies can cause much harm to the consumer. The oligopoly powers may in the future be the real enemy of the consumer.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)