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In economics, a monopoly (from the Greek monos, one + polein, to sell) is defined as a market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide (and a lack of viable substitute goods), as well as high barriers to entry for potential competitors on the market.
Monopoly should be distinguished from monopsony, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly).
Monopolies are often distinguished based on the circumstances under which they arise; terminologies differ, but one of the most common is to distinguish natural monopoly (also known as de facto monopoly) from government-granted monopoly (also known as de jureDe jure is a Latin expression that means "by law", as contrasted with de facto which means "in fact". The terms de jure and de facto are used like "in principle" and "in practice" when one is describing political situations. They are also often used when monopoly or coercive monopoly).
A monopoly can arise because of the peculiar features of a particular market — such as when a monopolist controls a unique natural resource, a public transport line or technological achievement. A monopoly can also arise from "fair" competition, when a single provider of a good or a service is chosen extensively or exclusively by the marketplace. Such monopolies are termed de facto monopolies. However, there are no examples of perfect "de facto" monopolies: The most effective "de facto" monopoly in recent times has been the De Beers diamond trading company, which held slightly less than 90 percent of the world diamond market in the mid-1980s.
When a monopoly arises from lawThis article is about law in society. For other possible meanings, see law (disambiguation). Law (a loanword from Danish-Norwegian lov , in politics and jurisprudence, is a set of rules of conduct which mandate or proscribe (or both) specified relationshis which explicitly forbid competition (or effectively prevent it through heavy regulationIn the context of government and public services regulation (as a process) is the control of something by rules, as opposed to its prohibition. In economics, it is part of the government relationship with markets, often seen as the opposite of deregulatio and subsidyA subsidy is a grant or monetary gift given by a private person or entity (often a government) to another private person or entity, as financial assistance or to help launch an enterprise. Critics of government interventions in free markets often use a wi), it is described as a " de jure monopoly", or government-granted monopoly (sometimes called a coercive monopoly). The term state monopoly is sometimes used to describe a type of government-granted monopoly in which government, either directly or indirectly through legislation, exercises significant control over the monopolist's decisions, and typically include industries that import, manufacture, and/or distribute alcohol, money, stamps, drugs, munitions, and gambling. An example of a "de jure" monopoly is AT&TAT&T formerly an abbreviation for American Telephone and Telegraph Corporation is an American telecommunications company, publicly listed on the New York Stock Exchange under the ticker symbol T . AT&T provides voice, video, data, and Internet telecommuni, which was granted monopoly power by the US government, only to be broken up in 1982 following a Sherman Antitrust suit.
The term " natural monopoly" is sometimes used to describe monopolies that come about because production conditions make a sole provider most efficient. Examples of a natural monopoly would be power distribution, water distribution or sewage transport to and from private households, as it is usually not practical for a single household to have more than one power line, water pipe or sewage pipe to the house.
The term is sometimes (loosely) used to describe companies such as Microsoft or Standard Oil, which do face market competition, but which command a large market share and use their size to compete in ways which are considered "unfair" — such as dumping products below cost to harm competitors, creating tying arrangements between their products, and other practices regulated under Antitrust law. However, since the products of the aforementioned companies do not fall into a unique category, but into a category of generalised or differentiated products, the suppliers are not engaged in monopolistic practises, but in practices known as " monopolistic competition".
Large corporations often attempt to monopolize markets through horizontal integration, in which a parent company consolidates control over several small, seemingly diverse companies (sometimes even using different branding to create the illusion of marketplace competition). Such a monopoly is known as a horizontal monopoly. A magazine publishing firm, for example, might publish many different magazines on many different subjects, but it would still be considered to engage in monopolistic practices if the intent of doing this was to control the entire magazine-reader market, and prevent the emergence of competitors.
A monopoly arrived at through vertical integration is called a vertical monopoly.
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