Explore the main causes of monopoly and how they shape market dynamics. Learn about the factors that contribute to the emergence of monopolies in different industries.
In a monopoly market, there is only one product sold by one company. This condition is what causes monopoly.In contrast, if there are several or many companies selling the same product, this will not cause a monopoly market.
10 Causes of Monopoly: Why Some Companies Control Entire Markets; You Must Know.
Monopoly means that a company has no competitors in its business activities. In other words, in this market there is only one seller.
- Ownership of Raw Material:
If a firm owns or controls the entire supply of an essential raw material used in the production of a commodity it then create a monopoly by keeping away the competitors out of the industry.
- Government Licensing:
Government licensing or the imposition of foreign trade barriers to exclude foreign competitors.
- Size of the Market:
The size of the market may be such as not to support more than one plant of optimal size The technology may be such as to exhibit substantial economies of scale, which require only a single plant if they are not to be fully reaped. For example in transport, electricity, communications, there are substantial economies which can be realized only at large scales of output.
4.Patent and Research:
In order to encourage research for the creation of a new product the Govt, gives patent and copy rights to the investors the exclusive right granted to an inventor to produce and control a product, blocks the entry of new firms producing the same commodity. The inventors thus enjoys the monopoly position of the life of the product.
5.State Ownership:
If a government itself owns and operates a business, a monopoly is then established. For instance railways, electricity etc.
6.Public Utilities:
In order to avoid cut throat competition and waste of resources a government grants exclusive rights to a corporation to engage itself in public utility services.
7.Economies of Scale:
If a firm using modern technology and heavy investment enjoys the increasing returns to scale it will produce goods at low unit costs.
8.Limit – Pricing Policy:
The existing firm adopts a limit – pricing policy that is a pricing policy aiming at the prevention of new entry.
9.Technical obstacles
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The company has special capabilities and knowledge, so it can produce very efficiently.
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The high level of efficiency makes monopoly companies have a declining cost curve. The greater the quantity of production, the lower the marginal cost. As a result, the production cost per unit is lower.
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The company has the ability to control the sources of production factors, whether in the form of natural resources, human resources, or production locations.
Monopoly can lead to misallocation of resources, namely the monopoly company deliberately limits its output level to maximize time,Prices are set high when demand increases and is not accompanied by sufficient product supply, resulting in price increases