Enter your email id to get regular update free
Login
Your Email
Pasword

CHARACTERISTICS OF MONOPOLY

Here, We Understand the Meaning of Monopoly and about its Characteristics one by one in detail.

Before we discuss the Characteristics of Monopoly, we first understand the meaning of Monopoly.
Meaning of Monopoly:
Monopoly is an extreme form of market quite opposite to perfect competition. Pure, perfect of absolute monopoly comes into existence when a single producer is able to take away the entire income of all consumers. This is not possible. Monopoly can be defined as a market in which there is only one producers/sellers of a product which has no close substitutes. A Monopolist is a single, sole, producer with a power to fix the price of his product. Unlike in the competitive firm a monopolist is not a price-taker, but a price maker.
Now we will discuss the Characteristics of Monopoly in Detail:
Monopoly possesses the following four characteristic features. They are as follows-
  1. Single producer/seller: This is one of the main features of monopoly. Here, the monopolist is the only producer of his product. The term monopoly is made up of two words that is mono means one and poly means seller. Thus, he is the only seller in the market of his commodity. Being the only producer, there is no difference between the monopoly firm and industry. Thus, the difference between the firm and industry does not exist in monopoly. According to Professor, Stonier and Hague, a monopolist is a sole producer and the distinction between the firm and the industry goes.
  2. Closed entry: Closed entry is also one of the main features of Monopoly. Entry of new firms is open in all other markets except monopoly. In Monopoly there are strong barriers to entry. A monopoly cannot hold if entry is easy. Here, A monopolist can survive only by preventing the entry of rivals.
  3. Absence of close substitutes: This is also one of the main characteristics of monopoly. Here, the monopolist is the only producer of the product he sells. It is not enough for monopoly. There must be absence of close substitutes. If there is only one maker of Liril soap and none else that is not sufficient for monopoly if there are firms manufacturing other brands of soaps like Pears, Lux, Dove etc. which are close substitutes of Liril soap competing with it. Monopoly implies absence of competition, which requires that there should be no threat or fear of competition from close substitutes. According to Professor. Triffin, Monopoly as a market situation in which the firm is independent of the price changes for the products of other firms that is, cross elasticity of demand between monopolist's product and other products in the market is zero.
  4. Downward sloping demand curve: This is also one of the main features of Monopoly. Here, the demand curve or AR curve facing a competitive firm under perfect competition is unusual. Perfectly elastic horizontal straight line to x-axis as the firm being too small can sell any quantity at the given price. But the demand or AR curve facing a monopolist is sloping downwards from left to right. It means that although the monopolist has control over price, he cannot ignore the elasticity of demand for his product. He has to reduce price in order to sell more, or if he wants to raise price he should be ready to accept some cut in his sale.
Figure
As shown in above figure, D/AR is the inelastic downward sloping demand curve facing the monopolist. Here, at OA price his sale was equal to [=] OM. Now if he raises price to OA2 he will have to suffer a cut in sale from OM to OM2. To increase sale from OM to OM1, he has to reduce its price from OA to OA1.
According to Professor. Lerner, Monopoly as any seller who is confronted with a falling demand curve for his product. He defines the concept of singleness of a firm is replaced by the concept of inelastic sales curve for the firm.
What is Monopoly?
Characteristics of Monopoly
Single producer/seller
Closed entry
Absence of close substitutes
Downward sloping of demand curve
Monopoly- Characteristics of Monopoly.
Kinnari
Tech writer at NewsandStory
Total 46 views