We all have played monopoly game in our childhood or must have at least heard about it but monopoly does not end up just as a game in economics monopoly has different meanings. While studying about market structures, economists identified four types of market of which monopoly is one; the word monopoly is derived from the combination of two words ‘Mono’ and ‘Poly’, mono means single and poly means control, in this way; monopoly is such a market situation in which there is only one seller who is selling a unique product in the market and that seller can be a private entity or state owned for example: IRCTC, Coal India, Google, and Microsoft etc. Any sellers who has monopoly in a market is called “Monopolist” and they have full control over the supply of a unique product as he is having control over the supply of the commodity he has the power to set the price. Thus, as a single seller, monopolist can be referred as a king without crown. A monopoly is created in a market structure when there are no close substitutes for the commodity and there are excessive or even absolute barriers to entry and those reasons could be legal, technological, monitory and special privileges or government prohibition or limitation.
Legal barriers: Barriers created by seller through copyright, patent or trademarks are legal barriers.
- Copyright: A copyright is a special protection given for original works of authorship including literary, musical, architectural, dramatic, choreographic, pictorial, graphic, sculptural, and audio-visual creations. No one is allowed to reproduce, display, or perform a copyrighted work without the prior permission of author. A copyright protection ordinarily lasts for the life of the author plus 60 years as per Indian laws. In India copyrights are regulated under Copyright Act 1957.
- Patent: Any exclusive right granted to a seller for an invention, which can be a product, or a process which provides a easy way of doing something, or may provide solution for a problem are called patent. Patents in India are regulated by Indian Patent Act 1970.
- Trademark: Any symbol or name for a particular type of product which appears on the product or in some way makes product recognisable or relates to the seller or producer can be a registered as trademark, in India itself approx 146,000 industrial trademarks were registered in financial year 2020 and in India Trademarks are regulated under Trademark Act of 1999.
Technological and Monitory barriers: Technological barriers are created when a limited access to useful, relevant, and appropriate hardware and software cannot be arranged. While monitory barriers are created through exorbitant investments so that no other seller can compete with them, both of these barriers are generally seen together in e-commerce space. Special privileges or government prohibition or limitation: Monopoly due to special privileges occurs when a company is given special privilege or control of a scarce resource for example: Coal Indian, on some products, government knowingly erects barriers to entry by limiting or prohibiting competition for example: Indian Post and IRCTC.
Monopolies are commonly considered negative for buyers, still there are a some advantages that can positively affect everyone in a monopolistic marketplace and they are:
- Stable prices: When there is no competition for seller, then there are no price wars which might rattle the markets. When companies trade with a monopolistic company they will enjoy the certainty of prices they will pay.
- The ability to scale up: A company which holds monopoly on a certain type of commodity may be able to produce that commodity in mass quantities at low cost per unit and depending on the ethics of the that company, the low price may be passed along to the consumer as well which could be generally seen happening in governmental monopolies.
- Budgets for research and development: A monopoly is more likely to invest in research and development because of their monopoly which will ultimately result in introduction of new products and efficiency in manufacturing which may benefit consumers down the line. For example: pharmaceutical industry
Despite the stability which monopolies bring, they are generally considered as a net negative for consumers due to following reasons:
- Increased prices: Whenever a single seller acts as the price decider for an entire industry, prices are typically seenrising.
- Inferior products: For monopolies there are very less or zero incentive to improvise the quality of product or services they provide. If you’re dissatisfied with IRCTC’s railway services, you may have little recourse apart from travelling by your own vehicle or taking a flight.
- Price discrimination: A monopolistic company may find it easy to engage in price discrimination, where they charge different prices for different consumers. In a train, where all concessions are controlled by IRCTC, the price of a ticket can be Rs 700 for general public, but it will be free for railway staff.