Definition
Per (Gans et al.) a monopoly is a firm that is the sole seller of a product without close substitutes for consumers.
Why It Matters
It is important to understand monopolies because of their (mostly) adverse affects on free markets.
Example
In 1994, Microsoft was accused of having a monopoly over personal computer operating systems. A judge called for the split of Microsoft into two companies, but the decision was later overturned and Microsoft was free to maintain its operation system plus other core businesses.
Limitations of Monopolies
Per Hayes (2024), monopolies limit competition and consumer choice (lower quality offered, artificial scarcities, fixed prices, few substitutes). In many economies, laws are enacted to restrict monopolies intended to make sure there is no single business in a market.
Work cited:
Gans, Joshua, et al. Principles of Microeconomics. South Melbourne, Victoria, Australia, Cengage Learning Australia, 2021.
Hayes, Adam. “What Is a Monopoly? Types, Regulations, and Impact on Markets.” Investopedia, 21 June 2024, www.investopedia.com/terms/m/monopoly.asp.
