12-6-11 Goal: What are the
characteristics of the market
structure monopolies?
Monopoly - occurs when there is only one seller of a
product that has no close substitutes.
Characteristics of a Monopoly
1. Only One Seller
-A monopoly is a industry in which a single firm is the
only producer of a good or the only supplier of a service.
2. No Close Substitutes
-In a pure monopoly there are no close substitutes, the
product is unique.
-If a consumer chooses not to buy the monopolized
product they must do without it
3. Many Barriers to Entry
Barrier to Entry 1: Economies of Scale- occurs when the
average cost of production goes down the bigger the
company gets
Example: No one can produce electricity cheaper than
ComEd
Barrier to Entry 2: The government awards patents and
licenses that prohibit competitors from copying
technology and only grants licenses to certain companies
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technology and only grants licenses to certain companies
Barrier to Entry 3: Ownership and Control of Resources
Example: ComEd owns all the power lines, poles, and
towers
Barrier to Entry 4: Strategic Barriers to entry
If there is competition, monopoly will lower price and
increase advertising
4. Sellers/Producers have complete control over Price
-Monopolies have complete control of price and output.
-Monopolies change the product price by changing the
quantity of the product it produces
Goal 2: What are the types of monopolies and why do
they exist?
1. Natural Monopoly- occurs when the costs of production
are cheaper when there is only one producer/seller.
-cheaper, safer and more efficient
-Usually regulated by the government
-Examples: Public Utilities (Electricity, Water, Natural
Gas)
Would you want more than one company providing
electricity?
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2. Government Monopoly- exists when the government
either owns and runs the business or authorizes one
producer.
Example: The Postal Service
-Used to be the only way to deliver messages to people
3. Technological Monopoly - is a monopoly that exists
because a business owns the manufacturing method,
invention, or type of technology
-usually occurs because of a patent on the product
-Monopoly only lasts as long as the patent
Example: Polaroid
4. Geographic Monopoly- occurs when there are no other
producers within a certain region.
Example: Professional Sports Teams
-can charge higher prices because of no competition
-can charge a lot for food, drinks and apparel inside the
stadium
Example: Small Communities
Exit Question: List the market structures we discussed in
order of how much competition there is? (1. most
competitive, 4. Least Competitive)
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