Introduction Markets are characterized by good and services offered. There exist different types of markets. Competition is considered one of the main aspects shaping a particular market. Businesses enter a particular market with an aim of profit maximization. Regulations from the government are also a determinant of what kind of market will prevail within a business environment. There exists a perfect market and a monopolistic market. A monopoly market has its disadvantages and advantages as further explained in this essay. As indicated by Timothy and Peter (1990, p. 531), a monopoly market refers to a market system whereby one supplier produces and sells products and services; in some instances there exists single sellers with no closes substitutes and this is referred to as a pure monopoly.
On the other hand there may be a number of sellers within a particular industry as well as very many close substitutes; this is what is referred to as a monopolistic competition. A monopoly market has a varying characteristics; single vendor i. e. One vendor of goods and services producing all the out put within the market.
The other characteristic is a firm possessing a huge market power; being able to have an impact on the terms and conditions, this enables a firm to set the prices unlike in perfect competition whereby prices are imposed by the market. In a monopolistic market, firms become industries making no difference between firms and industries within that market. In a monopoly market there exist price discrimination as a monopolist can make changes in the quality and price of a product or a service depending on the elasticity of the market.
In a monopoly market a firm experiences a demand curve that slopes downwards. The prices impacts on the quantity sold mainly due to lack of perfect substitutes (Bill 2000, p. 143). Monopoly market has varying forms of differentiation, this includes the differentiation of physical products; this is where the firms in a monopolistic competition makes use of different sizes, designs, shapes, colors, functioning and other main features in order to create a differentiation in their products, a good example for this case are electronics such as computers as they can easily be differentiated physically.
The other form of differentiation in a monopoly market is the market differentiation; this is whereby firms distinguish their products by having a classifiable packaging as well as promotional proficiencies. For example packaged foodstuff can easily be differentiated through their packaging. Human capital differentiation is the creation of variation through the skills of employees within a firm. Lastly, the monopolies create a differentiation through unique distribution methods such as online business or e-commerce (Adam 1999, p. 22). There are various factors that may cause a market to adopt a monopolistic nature this includes entry barriers; they act as impediment to potential e competitors to enter the market.
These barriers are: -economic barriers such as the economies of scale; involve large cost of starting a business giving monopolies a great advantage over would be competitors, in monopolies firms are placed in a better position to their prices lower than new starters driving them out of the business (Ishani 2011). Capital requirements for example in the production processes that require big investments of beginning capital or expenses related to large research as well as development, limits many firms from entering an industry thus creating a monopoly market.
When some firms are superior technologically they create a monopoly as they are able to use the best technology in the production process of their products; when newcomers do not have the muscle to use any technology available to them, they are kept away from an industry. A good example of such industry is the broadcasting and computer industry. When there are no goods to substitute; an absence of close substitutes makes a demand for that particular product or service inelastic therefore, enabling monopolies to develop and to get high profits (Steve 2004).