Monopoly

Is a sole supplier of a good or service
Free Market Competition
Disadvantages of Monopoly

Take away
competition and
many advantages
of free markets
disappear.

Can you write
down a list of
disadvantages of
monopolies? Leave
space for any you
might have missed.
Statutory Monopoly
In reality not many businesses are sole
suppliers
 Any firm with over 25% market share may
have some monopoly power which they
may use to exploit the consumer and
restrict competition.

Advantages of Monopolies

Research and development

Natural monopolies – national pipes, wires
and tracks (economies of scale)

Ability to compete in global markets
Disadvantages of Monopolies

Monopolies may restrict output and raise price (compared to a
perfectly competitive industry)
Disadvantages
Poor service quality
 Lack of investment
 Inefficient - not productively or allocatively
 Inefficient – x-inefficient

Barriers to Entry

Monopolies exist behind barriers to entry.

These are characteristics of the market
that make it difficult or impossible for a
new firm to enter.

What barriers to entry may a monopoly be
able to ‘hide behind’.
Barriers to entry
Economies of scale
 Natural monopolies
 Legal barriers
 Brand loyalty
 Anti-competitive behaviour

Natural Monopoly
A natural monopoly is an industry where
one single firm cannot fully exploit the
economies of scale, given the size of the
national market.
 For this type of monopoly LRACs just
continue to fall.
 It is economically efficient to have only
one firm in this industry.
 Pipes, wires and tracks.

Homework- Classwor
Find a newspaper article about an industry
you are interested in
 Companies this applies to include Tesco in
the UK or Microsoft.


Bring it next lesson and be prepared write
a 600 – 750 word commentary.