Monopoly is the ability of a single seller or organization to dominate a particular market
Monopoly is the ability of a single seller or organization to dominate a particular market. There are several factors which lead to a monopoly within a region and the common ones are; a particular organization owning essential resource, the inability of other industries to participate in the production of a particular product because of factors such as price, and government of a distinct region restricting other organizations from producing a particular product. Just like any other idea, the monopoly has unique characteristics. Several factors favor monopoly, which leads to its existence in various societies. The whole idea behind the monopoly also has both advantages and disadvantages.
Characteristics of Monopoly
Every setting within the idea of monopoly has precise characteristics, which are unique identifiers. One of the significant characteristics of a monopoly is profit maximizer. Organizations that practice monopoly barely face competition (Monopolistic Markets – Overview, Characteristics, and Regulation, 2020). This enables most organizations to determine the prices of different commodities within a precise market setting. Several organizations that involve themselves in monopoly tend to hike the prices of products in the market. The prices are usually compared to situations in which are markets have competition from different organizations.
Monopoly tends to determine the prices of precisely within the market. The prices are in terms of the quantity which are produced by organizations. The industries choose to increase the prices or decrease them at will (mzacharias, 2019). This is because there are no strict rules which govern how specific prices are supposed to be set for precise goods within the market.
Multiple new organizations keep on rising within the market that can offer significant competition. Organizations that have been practicing tend to dominate the market because various barriers exist, such as a single organization owning primary resources and restricting other emerging industries from using the essential resource. There are times when governments play a significant role when it comes to creating rules that act as barriers to emerging industries.
Factors that Favor Monopoly
There are several factors which make a monopoly to exist in the various market setting. The current era is marked by activities of copying ideas and innovative inventions. One of how individuals or organizations protect their ideas and inventions is through copyright rules, which exist in most countries globally (Meagan, 2018). Copyright rules tend to give an organization authority to own a precise good to own the product for a certain period. The primary aim of copyright rules in various industries is usually to enable the owner of the idea or product to regain the funds or expenses they used to create the idea. The rules are strict to an extent whereby the good owner is the one who determines the individuals who can alter the idea or benefit from it.
On the other hand, the government tends to play a significant role when it comes to creating a monopoly. There are times when governments create a monopoly so that they can benefit on their own. The government creates law and regulations which are in favor of their ideas within the market. There are several external personnel who are involved in the government-granted monopoly (mzacharias, 2019). Such individuals only make decisions within the business, but the major parties that benefit from the profit or outcomes are the government itself.
The economic scale creates a barrier for other organizations to involve themselves in joining a precise market setting. The primary industries that benefit from the economic scale are the ones that have been in the business for decades and have had enormous development. Such industries tend to have an added advantage when it comes to production. This is because organizations can access funds from various banks due to their popularity and scale. The scale of the economy within industries also generates a network effect (Meagan, 2018). This is when products from a particular organization are used by several individuals, making the same products preferred compared to products from other industries that offer competition.
Advantages of Monopoly
The funds generated from a monopoly can be used to support investment, which requires several resources in terms of money. The funding is usually possible because of the enormous amount of money generated from monopoly activities (Carare, 2016). One of the significant ways in which industries that enjoy monopoly benefit from the whole idea of dominating the market is through research on methods of service improvement. One of the primary industry which has been benefitting from monopoly for several years is the drug production organizations. There is a high probability of failure in drug production, thus the need for monopoly.
An enormous economic scale tends to lead to a lower cost of producing products. This is advantageous to consumers of various products within the market, whereby the target audience can acquire the goods at a lower cost (Carare, 2016). Industries such as the ones in charge of tap water are the ones that benefit from the idea enormous economic scale. Such industries are known as natural monopolies.
Monopoly industries tend to face multiple competitions when it comes to international affairs. Several governments are supporting their industries’ involvement in international business. One of the significant characteristics of international business is that they tend to be full of competition (Carare, 2016). This is because the whole idea involves different countries that have their specific industries. Local monopoly enables organizations to adapt to international requirements, which are quality on most occasions.
Disadvantages of monopoly
Industries that dominate a particular market tend to exploit their target audience. There are multiple occasions in which organizations decide when to increase or decrease the prices of their goods. The target audience usually adheres whenever there is a price change because they have limited options for acquiring goods (Meagan, 2018). Organizations can lower their service delivery quality because they are the only organization within a particular market. Organizations have an opportunity to discriminate against the target audience in terms of prices. This is evident whereby organizations can either set high or low prices of goods for specific consumers.
Monopoly tends to favor the idea of lack of improvement in service delivery towards a precise target audience. This is because industries prone to monopoly barely have competition; thus, they have the freedom to conduct activities the way they want (Carare, 2016). The consumer preference can also be ignored with ease.
The whole idea behind the monopoly has precise characteristics such as maximization of prices amongst others. Several factors favor monopoly in various regions, such as the high cost of production. On the other hand, the government plays a significant role in the monopoly by creating rules that either favors their industries or precise organizations that work in conjunction with them. There are multiple advantages and disadvantages when it comes to monopoly. One of the significant advantages of monopoly is the idea of enabling a precise organization to compete effectively when it comes to international affairs. Monopoly also tends to exploit target audience who depend on particular industries for products and services.
Carare, P. M. (2016). Monopoly: Advantages and Disadvantages. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1787089
Meagan. (2018). Advantages and Disadvantages of Monopolies – TO CONSUMERS AND SOCIETY. Getrevising.co.uk. https://getrevising.co.uk/grids/advantages-and-disadvantages-of-monopolies-to-2
Monopolistic Markets – Overvierw, Characteristics, and Regulation. (2020). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/economics/monopolistic-markets/
mzacharias. (2019, March 10). Are There Monopolies in 2019? Fordham.Edu. https://news.law.fordham.edu/jcfl/2019/03/10/are-there-monopolies-in-2019/