9 Examples of a Monopoly

John Spacey, April 22, 2018

A monopoly is a firm that dominates a market such that competition is limited or non-existent. Competition drives economic efficiency, improvement and low prices. As such, a monopoly is often considered an economic problem that degrades the health of an industry. The following are illustrative examples of a monopoly.

Pure Monopoly

A firm that has complete control of an industry such that there is zero competition. This is relatively rare as a monopoly may encourage limited competition to present itself as a non-monopoly.

Government Monopoly

Goods provided by the government as a public service with competition excluded by law or the extraordinary power of the government. In many cases, this is done to provide a universal service such as a postal service that serves every address in a nation, including remote addresses that are costly to reach. Public services that are provided free of charge such as public education or healthcare are not typically considered a monopoly.

Government-Granted Monopoly

A monopoly openly granted to a firm by the government. This typically requires the government to regulate the behavior and prices of the firm.

Natural Monopoly

A monopoly that makes economic sense as it would be too costly to duplicate certain infrastructure. The classic example is a railway between two cities. Modern technologies tend to remove natural monopolies as it becomes possible for firms to share infrastructure. For example, two rail firms could bid for slots on a rail line.

Coercive Monopoly

A monopoly that is created using extraordinary power such as a government or international agency. For example, a government that grants legal protections to firms that create barriers to entry to prevent competition. Firms commonly lobby governments for rules that protect them from competition.

Monopsony

A monopsony is the opposite of a monopoly where there is only one customer in an industry. For example, a nation with a universal healthcare system can push down the prices of medications as they are effectively the only customer.

Oligopoly

An oligopoly is an industry that is dominated by two or three firms. This may result in healthy competition. However, an oligopoly represents a high risk of collusion as firms could meet and decide to fix prices, salaries or supply. In many cases, this is illegal but difficult to detect.

Small Monopoly

Monopolies aren't necessarily large firms. For example, the only supermarket in an extremely remote town is a monopoly as it effectively has no competition.

Cloaked Monopoly

A monopoly that attempts to make itself look smaller by classifying itself as a member of a gigantic industry. It is common for monopolies to define their industry in vague or broad terms such as "technology company", "consumer services firm" or "transportation company".

Notes

A monopoly can result in higher prices, low quality and poor customer service as the secure position of the monopoly gives them incentive to take much and give little.