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Monopoly
Monopoly is said to exist when one firm is the sole producer or sellers of a product which has no close substitutes. Three points are worth nothing in this definition. First, must be a single producer or seller of a product if there is to be monopoly. This single producer may be in the form of an individual owner or a single partnership or a joint stock company. If there are many producers producing a product, either perfect competition or monopolistic competition will prevail depending upon whether the product is homogeneous or differential. On the other hand, when there are few producers or sellers of a product, oligopoly is said to be exist. If then there is to be monopoly, there must be one firm in the industry. Even literally monopoly means one seller. ‘Monopoly’ means one and ‘poly’ means seller. Thus monopoly means one seller or one producer.
But to say that monopoly means one seller or producer is not enough. A second condition which is essential for a firm to be called monopolistic is that no close substitutes for the product of the monopolistic firm should be available in the market. If there are some other firms which are producing close substitutes for the product in question there will be competition between them. In the presence of this competition a firm cannot be said to have monopoly. Monopoly implies absence of all competition. For instance there is one firm any country which ‘Binaca’ toothpaste but this firm cannot be called monopolist since there are many other firms in the country produce close substitutes of Binaca toothpaste such as Colgate, promise, Forhans, Meclean etc. these various brands of toothpaste compete with each other in the market and the producer of any of them cannot be said to have a monopoly. Prof. Bober rightly remarks, “the privilege of being the only seller of a product does not by itself make one a monopolist in the sense of possessing the power to set the price. As the one seller, he may be a king without a crown.”
We can express the second condition of monopoly in terms of cross elasticity of demand also. Cross elasticity of demand shows a change in demand for a good as a result of change in the price of another good. Therefore, if there is to be a monopoly the cross elasticity of demand between the product of the monopolist and the product of any other producer must be very small.
The fact that there is one firm under monopoly means that other firms for one reason or other are prohibited to enter the monopolistic industry. In case of monopoly, barriers are so strong that prevent entry of all firms except the one which is already in the field.
From the above it follows that for the monopoly to exist, three conditions are necessary:
1. There is a single producer or seller of a product.
2. There are no close substitutes for the product.
3. Strong barriers to the entry into the industry area.
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But to say that monopoly means one seller or producer is not enough. A second condition which is essential for a firm to be called monopolistic is that no close substitutes for the product of the monopolistic firm should be available in the market. If there are some other firms which are producing close substitutes for the product in question there will be competition between them. In the presence of this competition a firm cannot be said to have monopoly. Monopoly implies absence of all competition. For instance there is one firm any country which ‘Binaca’ toothpaste but this firm cannot be called monopolist since there are many other firms in the country produce close substitutes of Binaca toothpaste such as Colgate, promise, Forhans, Meclean etc. these various brands of toothpaste compete with each other in the market and the producer of any of them cannot be said to have a monopoly. Prof. Bober rightly remarks, “the privilege of being the only seller of a product does not by itself make one a monopolist in the sense of possessing the power to set the price. As the one seller, he may be a king without a crown.”
We can express the second condition of monopoly in terms of cross elasticity of demand also. Cross elasticity of demand shows a change in demand for a good as a result of change in the price of another good. Therefore, if there is to be a monopoly the cross elasticity of demand between the product of the monopolist and the product of any other producer must be very small.
The fact that there is one firm under monopoly means that other firms for one reason or other are prohibited to enter the monopolistic industry. In case of monopoly, barriers are so strong that prevent entry of all firms except the one which is already in the field.
From the above it follows that for the monopoly to exist, three conditions are necessary:
1. There is a single producer or seller of a product.
2. There are no close substitutes for the product.
3. Strong barriers to the entry into the industry area.
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Demand Capital Characteristics
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