DEFINITION of 'Monopoly'

A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products.

According to a strict academic definition, a monopoly is a market containing a single firm. In such instances where a single firm holds monopoly power, the company will typically be forced to divest its assets. Antimonopoly regulation protects free markets from being dominated by a single entity.


Loading the player...


Monopoly is the extreme case in capitalism. Most believe that, with few exceptions, the system just doesn't work when there is only one provider of a good or service because there is no incentive to improve it to meet the demands of consumers. Governments attempt to prevent monopolies from arising through the use of antitrust laws.

Of course, there are gray areas; take for example the granting of patents on new inventions. These give, in effect, a monopoly on a product for a set period of time. The reasoning behind patents is to give innovators some time to recoup what are often large research and development costs. In theory, they are a way of using monopolies to promote innovation. Another example are public monopolies set up by governments to provide essential services. Some believe that utilities should offer public goods and services such as water and electricity at a price that is affordable to everyone.

  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Monopolist

    A person, group or organization with a monopoly. In other words, ...
  3. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  4. Duopoly

    A situation in which two companies own all or nearly all of the ...
  5. Monopsony

    A market similar to a monopoly except that a large buyer not ...
  6. Oligopoly

    A situation in which a particular market is controlled by a small ...
Related Articles
  1. Investing Basics

    How Is Google Regulated In The US?

    Learn why Google has been the target of an anti-trust investigation by the Federal Trade Commission as well as a civil penalty for privacy issues.
  2. Investing Basics

    Is Google Becoming A Monopoly?

    Learn about whether Google is becoming a monopoly. Monopolies are considered undesirable because they prevent competition and innovation.
  3. Economics

    How a Monopoly Works

    In economics, a monopoly occurs when one company is the sole (or nearly sole) provider of a good or service within an industry. This potentially allows that company to become powerful enough ...
  4. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  5. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  6. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  7. Fundamental Analysis

    Pharma Patent Trolls: Cheap Drugs At A Steep Price

    Though patent trolls can help patients achieve cheaper medication in the short-term, everyone pays for it in the long term.
  8. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  9. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  10. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  1. What level of return on equity is average for a company in the telecommunications ...

    The telecommunications sector encompasses a wide variety of companies operating in different industries such as wireless ... Read Full Answer >>
  2. Why should management teams focus more on horizontal integration?

    Management teams should focus more on horizontal integrations because they allow for economies of scale, economies of scope, ... Read Full Answer >>
  3. What are the benefits of investing in a money market fund?

    The U.S. Department of Justice, or DOJ, and the Federal Trade Commission, or FTC, use the Herfindahl-Hirschman Index, or ... Read Full Answer >>
  4. What is the difference between a mutual fund and money market fund?

    The Herfindahl-Hirschman index can be used to determine competitive balance in sports. Competitive balance is desired in ... Read Full Answer >>
  5. What is the difference between a money market fund and a savings account?

    The primary advantages of the Herfindahl-Hirschman Index (HHI) are the simplicity of the calculation necessary to determine ... Read Full Answer >>
  6. What is the purpose of the Herfindahl-Hirschman Index?

    The Herfindahl-Hirschman Index (HHI) evaluates the concentration of a firm in a market. It is used by the government to ... Read Full Answer >>
  7. What is the difference between a capitalist system and a free market system?

    A capitalist system and a free market system are economic environments where supply and demand are the main factors of price ... Read Full Answer >>
  8. What factors influence competition in microeconomics?

    From a microeconomics perspective, competition can be influenced by five basic factors: product features, the number of sellers, ... Read Full Answer >>
  9. How does government regulation impact the aerospace sector?

    The aerospace sector, primarily including companies operating airlines as well as aircraft manufacturers, is heavily regulated ... Read Full Answer >>
  10. What do high economic profits in a given industry suggest about that industry?

    High economic profits suggest the industry is new and ripe for disruption or has high barriers to entry. Any time a firm ... Read Full Answer >>
  11. Do the laws of supply and demand ever not apply to markets?

    While the laws of supply and demand act as a general guide to free markets, they are not the sole factors that affect conditions ... Read Full Answer >>
  12. What burst the Mississippi bubble?

    In 1715, France was essentially insolvent as a nation. Even though taxes were raised to extremely high levels, the hole ... Read Full Answer >>
  13. How did Dow Chemical defeat an international monopoly in the 1900s?

    Herbert Henry Dow, a Canadian by birth, was a remarkable man. A chemist and an entrepreneur, Dow was one of the first people ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!