CandleFocus

Monopolistic Markets

Candlefocus Editor
A monopolistic market is a type of market structure where a single company or firm dominates production and supply of products, either through ownership of the primary inputs needed in production and supply of the products, or through its powerful position in the market. It typically has a relatively higher price than what a competitive market or buyer would set, but the firm may still offer certain discounts and promotional deals. The price of the monopolistic product (or service) is not only determined by the cost of manufacturing and supply, but also by the demand of the consumers, which may be influenced in various ways. Monopolistic markets, then, are partly competitive and partly monopolistic.

Most monopolistic markets exist as a result of strategic governmental policies, or even legislative decrees, which limit or marginalize competitors, or of the extreme competitive advantage a single company has obtained. For instance, often the extremely large market shares held by a few companies allows them to fix prices and discourage entry of rivals.

In terms of economic performance, the monopolistic markets lead to an inefficient allocation of resources since companies may not have any incentive to place the lowest price and to improve quality of products; higher prices will prevail due to lack of competition. Moreover, higher prices may prevent people, who are not part of the high-income sectors, from obtaining the good or service in question.

In general, it may be observed that monopolistic markets, or the presence of a monopoly, offer an inadequate protection of consumers’ interests. For this reason, these markets are often subject to regulation by governmental entities which may decide to enforce competition rules, control prices and protect property rights, as is the case of the tobacco market monopolized by Altria. Those measures will ensure that the effects of the monopoly are kept within reasonable limits; for instance, the government may set a minimum price to counteract the monopoly’s higher prices.

While monopolistic markets can be beneficial to companies and consumers in some aspects, it is widely looked down upon by regulators who wish to protect the interests of buyers. This is particularly true in the case of strategic governmental policies or legislative instructions which suppress and limit competition, resulting in market distortion and chaotic economic conditions.

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