These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Antitrust Laws and Enforcement. Types of Antitrust Violations.
Economics Macroeconomics. Table of Contents Expand. How to Create a Monopoly. Why Monopolies Are Created. The Downside of Monopolies. Monopolies FAQs. The Bottom Line. Key Takeaways A monopoly is a company that exists in a market with little to no competition and can therefore set its own terms and prices when facing consumers, making them highly profitable.
While monopolies are both frowned upon as well as legally suspect, there are several routes that a company can take to monopolize its industry or sector. Using intellectual property rights, buying up the competition, or hoarding a scarce resource, among others, are ways to monopolize the market. The easiest way to become a monopoly is by the government granting a company exclusive rights to provide goods or services.
Government-created monopolies are intended to result in economies of scale that benefit consumers by keeping costs down. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Even if a company does not have a patent on an invention, competing firms are not allowed to steal their secrets. One famous trade secret is the formula for Coca-Cola, which is not protected under copyright or patent law, but is simply kept secret by the company. Taken together, we call this combination of patents, trademarks, copyrights, and trade secret law intellectual property , because it implies ownership over an idea, concept, or image, not a physical piece of property like a house or a car.
Countries around the world have enacted laws to protect intellectual property, although the time periods and exact provisions of such laws vary across countries. There are ongoing negotiations, both through the World Intellectual Property Organization WIPO and through international treaties, to bring greater harmony to the intellectual property laws of different countries to determine the extent to which those in other countries will respect patents and copyrights of those in other countries.
Government limitations on competition used to be more common in the United States. From the s to the s, one set of federal regulations limited which destinations airlines could choose to fly to and what fares they could charge.
Another set of regulations limited the interest rates that banks could pay to depositors; yet another specified how much trucking firms could charge customers. What products we consider utilities depends, in part, on the available technology. Fifty years ago, telephone companies provided local and long distance service over wires.
It did not make much sense to have many companies building multiple wiring systems across towns and the entire country. The same thing happened to local service, especially in recent years, with the growth in cellular phone systems. The combination of improvements in production technologies and a general sense that the markets could provide services adequately led to a wave of deregulation , starting in the late s and continuing into the s. This wave eliminated or reduced government restrictions on the firms that could enter, the prices that they could charge, and the quantities that many industries could produce, including telecommunications, airlines, trucking, banking, and electricity.
Around the world, from Europe to Latin America to Africa and Asia, many governments continue to control and limit competition in what those governments perceive to be key industries, including airlines, banks, steel companies, oil companies, and telephone companies. Vist this website for examples of some pretty bizarre patents. Businesses have developed a number of schemes for creating barriers to entry by deterring potential competitors from entering the market.
One method is known as predatory pricing , in which a firm uses the threat of sharp price cuts to discourage competition. Predatory pricing is a violation of U. Consider a large airline that provides most of the flights between two particular cities. A new, small start-up airline decides to offer service between these two cities.
The large airline immediately slashes prices on this route to the bone, so that the new entrant cannot make any money. After the new entrant has gone out of business, the incumbent firm can raise prices again.
After the company repeats this pattern once or twice, potential new entrants may decide that it is not wise to try to compete. Small airlines often accuse larger airlines of predatory pricing: in the early s, for example, ValuJet accused Delta of predatory pricing, Frontier accused United, and Reno Air accused Northwest. In , the Justice Department ruled against American Express and Mastercard for imposing restrictions on retailers that encouraged customers to use lower swipe fees on credit transactions.
In some cases, large advertising budgets can also act as a way of discouraging the competition. If the only way to launch a successful new national cola drink is to spend more than the promotional budgets of Coca-Cola and Pepsi Cola, not too many companies will try. A firmly established brand name can be difficult to dislodge.
Figure lists the barriers to entry that we have discussed. This list is not exhaustive, since firms have proved to be highly creative in inventing business practices that discourage competition. When barriers to entry exist, perfect competition is no longer a reasonable description of how an industry works.
When barriers to entry are high enough, monopoly can result. Barriers to entry prevent or discourage competitors from entering the market. These barriers include: economies of scale that lead to natural monopoly; control of a physical resource; legal restrictions on competition; patent, trademark and copyright protection; and practices to intimidate the competition like predatory pricing.
Intellectual property refers to legally guaranteed ownership of an idea, rather than a physical item. The laws that protect intellectual property include patents, copyrights, trademarks, and trade secrets. A natural monopoly arises when economies of scale persist over a large enough range of output that if one firm supplies the entire market, no other firm can enter without facing a cost disadvantage.
Monopoly A pure monopoly is a single supplier in a market. Formation of monopolies Monopolies can form for a variety of reasons, including the following: If a firm has exclusive ownership of a scarce resource, such as Microsoft owning the Windows operating system brand, it has monopoly power over this resource and is the only firm that can exploit it.
Governments may grant a firm monopoly status, such as with the Post Office, which was given monopoly status by Oliver Cromwell in The Royal Mail Group finally lost its monopoly status in , when the market was opened up to competition. Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names, giving them exclusive rights to sell a good or service, such as a song writer having a monopoly over their own material. A monopoly could be created following the merger of two or more firms.
Key characteristics Monopolies can maintain super-normal profits in the long run. In general, the level of profit depends upon the degree of competition in the market, which for a pure monopoly is zero. See also: Natural monopolies Evaluation of monopolies The advantages of monopolies Monopolies can be defended on the following grounds:. Business Economics. Nikolay Krylovskiy T Explaining The K-Shaped Economic Recovery from Covid Explaining The K-Shaped Economic Recovery from Covid A K-shaped recovery exists post-recession where various segments of the economy recover at their own rates or levels, as opposed to a uniform recovery where each industry takes the same We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits.
Do not sell my personal information. Cookie Settings Accept. Manage consent. Close Privacy Overview This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent.
You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience. Necessary Necessary. Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously. The cookie is used to store the user consent for the cookies in the category "Analytics".
The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is used to store the user consent for the cookies in the category "Other. The cookie is used to store the user consent for the cookies in the category "Performance". It does not store any personal data. Functional Functional.
0コメント