Monopoly Market`Definition: This is a market structure in which there is only one seller or producer for a particular product. What this means is that the single seller or the single producer constitutes the industry that produces that particular good or service that is sold in that market. Monopoly market emerges due to the existence of substantial barriers that restrict entry into the market. This feature gives the seller or the producer the power to control both output and the price. The monopoly have the capacity to determine what level of output to produce as well as the price to charge for each unit of that output. Economic, social or political factors are part of the sources of barriers that restrict entry into the monopoly market.
The effect of these barriers is to give the monopoly the powers outlined above. This makes the consumers price takers for the product or service provided by the monopoly. Therefore, the monopoly can charge high prices for a low quantity of output. When this happens, the monopoly is said to portray welfare loss. This results from the comparison between the monopoly and the perfect competition market structure, where price for a given quantity of output is lower than that of the monopoly, given that the output level of the perfect competition is higher than that of the monopoly (Smith & David 345).
This is shown in the diagram below: The monopoly charges price Pm for the quantity Qm, while in the perfect competition price Pc is charged for the output Qc. This shows how the monopoly is able to control prices of its output. Causes of a monopoly marketLegal monopolyLegal processes lead to emergence of monopolies due to the substantial barriers that those processes create.
Legal concerns that cause occurrence of monopolies include patent rights, copyrights and licenses. These processes are backed up by law that have been formulated and implemented to oversee and govern market structures. Patent rights are issued to the firm or company behind the development of a unique product or service that was not available before. Patent rights grant the firm owner the rights to control activities that pertain to that product that the firm develops.
The firm therefore owns sole rights to the product or service. This limits the ability of any other firm joining the market to provide a similar good or service. Consequently, the firm has the ability to control what amount it produces and the price it charges for the product or service (Adams, Steve, Periton, and Paul 206). Such powers are only possessed by a monopoly, and patent rights therefore result to emergence of a monopoly through the use of patent rights. Copyright is another aspect that leads to occurrence of monopolies.
It happens when rights to written work is accorded to people who develop it. These people become the legal owners of such works and as well control many alterations on them. Any other parties have no rights to do so. Another form of legal control that brings about monopolies is the use of licenses. The government through the relevant agencies controls issue of licenses to firms that want to venture into business or other operations. Legal exclusions by the government are based on the issue of licenses. Firms that the government does not want to venture into the market are denied licenses to do so.
This builds up monopolies according to what the government is interested in.