What Is a Monopolist?
A monopolist is an individual, group, or company that controls all of the market for a particular good or service. A monopolist probably also believes in policies that favor monopolies since it gives them greater power. A monopolist has little incentive to improve their product because customers have no alternatives. Instead, their motivation is focused on protecting the monopoly.
Monopolies exists when a monopolist becomes the only supplier of a particular product or service. This is different from a monopsony, which refers to a single entity's sole power to purchase a good or service. It is also different from an oligopoly, which consists of a few sellers dominating a market.
The hallmark of a monopoly is a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to excessive profit.
In economics, a monopoly is a single seller. However, according to the law, a monopoly only needs to be a business entity that has significant market power – enough power to charge overly high prices. Although monopolies may be big businesses, size is not a required characteristic of a monopoly. A small business may still have the power to raise prices in a small industry. Monopolies can be established by a government, form organically, or form by the merger of formerly independent companies or organizations.
In many jurisdictions, such as the United States, there are laws restricting monopolies. Being the sole or dominant player in a market is often not illegal in itself. However, certain categories of monopolistic behavior can be considered abusive in a free market, and such activities will often attract the monopoly label and legal sanctions to go with it. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. A government may also reserve a venture for itself and form a government monopoly.
Characteristics of a True Monopolist
- The primary concern of a monopolist is to maximize profits at all costs.
- A monopolist will have the power to arbitrarily decide the price of the good or product to be sold. Usually, this decision is made in such a way that keeps prices as high as possible while satisfying demand.
- Other sellers are unable to go into business within the territory of a monopolist.
- In a monopoly, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.