A monopoly market is characterised by a single seller of a product with no close substitutes, thereby little competition. This fact alone means that the firm faces a downward-sloping demand curve, which is the market demand curve, and has the power to choose the price at which it sells its product.
There can be a few reasons for monopolies. Firstly, very high barriers to entry protect a monopoly producer from competition. Copyrights and patents also protect a monopoly from competition. Another possible source of monopoly power is control over a resource specifically needed to produce the product. Most frequently, monopoly power is supported by government. In such cases, the price the monopoly charges is often regulated by the government as well.
The most common example of a regulated monopoly is the local electrical power provider. In most cases, the monopoly power provider is allowed to earn a normal return on its investment and prices are set by the regulatory authority to allow that return.« Back to Index