Features of Monopoly

Monopoly as a form of market has the following basic features.

Single Seller and Large Number of Buyers

Monopoly is a single firm-industry. The distinction between firm and industry so important in perfect competition vanishes under monopoly. Under monopoly, the supply of a commodity is controlled by a single seller or a group of sellers acting as one. Telephone services provided by a single authority is an example of monopoly while competitive conditions exist on the side of demand due to the presence of large numbers consumers. The demand for monopolist’s product becomes the market demand.

Non-Availability of Close Substitute

Monopoly seller sells a product which does not have dose substitute in the market. Telegrams, letters, courier service are not the close substitute of telephone. Similarly candle light, kerosene lamp etc. are poor substitute of electric light. Therefore if a single company supplies electricity or providers telephones service to a particular town, then they become the examples of monopoly. According to Prof. Bober, “the privilege of being the only seller of a product does not by itself make one a monopolist in the sense of possessing the power to set the price. As the one seller, he may be the king without a crown”. Thus monopoly exists when the cross elasticity of demand between the product of a single seller and the products of any other seller must be very small. Cross elasticity of demand shows the degree of responsiveness of demand of a good due to the change in price of another good.

Barriers to Entry

Under monopoly, strong barriers to enter into industry exist. That means outside firms face strong barriers to enter into the monopoly industry. The barriers may be legal, technical or institutional. This enable the monopolist to have full control over the production and sale of the commodity.

Independent Price Policy

Under monopoly, the firm is the price maker unlike perfect competition where the firm is the price taker. Since monopoly is one firm-industry, it has full control over the market supply and hence the price of the product. He can raise the price by reducing the supply land can lower the price by increasing the supply.