Economics » Market Structures » Imperfect Markets

Pure Monopoly

Pure Monopoly

Pure monopoly is the exact opposite of perfect competition. Strictly defined, pure monopoly is a market structure in which there is a single firm producing a commodity or providing a service that has no close substitutes. As the sole supplier to its market, the pure monopolist is assumed to have no current competitors, and it is protected against the potential competition of new entrants into the market.

Characteristics of Pure Monopoly

  1. One Firm in the Industry: A pure monopoly is an industry consisting of only one firm. The monopoly firm’s demand curve is, therefore, the industry demand curve and it slopes downward – i.e. it must lower price to sell a greater amount of its product.
  2. Absence of Supply Curve: When deciding how much to produce and what price to charge, the monopolist simultaneously considers demand and cost. The monopolist does not have a supply curve independent of demand conditions, in contrast to what is obtained under perfect competition.
  3. Barriers to Entry: In order for a firm to maintain its monopoly position, barriers exist to prevent the entry of new firms. Such barriers including control over the factors of production, legal protection, economies of scale and consumer loyalty are the main sources of monopoly power.

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