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.
- A monopolist refers to an individual, group, or company that dominates and controls the market for a specific good or service.
- This lack of competition and lack of substitute goods or services means the monopolist wields enough power in the marketplace to charge high prices.
- While being the sole or dominant player in a sector is not illegal in itself, it can attract government sanctions if the monopolist's behavior begins to drastically limit the free market.
- The United States government regulates unfair competition by enforcing antitrust laws, which restrict monopolies and protect consumers from predatory business practices.
- Some monopolies are legal and sanctioned by the government, such as companies in the utilities sector.
Monopolies exist 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.
Criticism of Monopolists
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.
When a company is the sole provider of a good or service, it can become powerful enough to prevent other companies from entering the marketplace and providing competition. With the lack of alternative choices in the marketplace, consumers are often left with no choice but to pay the higher prices the monopolist demands or go without the desired product or service.
Governments enact and enforce antitrust laws to penalize monopolists and ensure fair competition in the marketplace. These laws protect consumers from predatory business practices, such as price gouging. In some cases, the government may step in and force a breakup of the monopoly.
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. In the United States, many companies in the utilities sector are an example of government-granted monopolies. A government may also reserve a venture for itself and form a government monopoly.
Characteristics of a True Monopolist
A monopolist has full control of a market and is the one supplier that provides a good or service to many consumers. Beyond that, however, there are certain characteristics of a monopolist that stand out above others:
- 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 goods or products to be sold. Usually, this decision is made in such a way that keeps prices as high as possible while satisfying consumer demand.
- The monopolist may go to extreme measures to ensure other sellers are unable to go into business within the territory.
- Because of the lack of competition, the monopolist may be slow to make product improvements or respond to consumer complaints.