Chapter 7 Section 2 The Impact of Monopoly

What Do Most People Think Whey They Hear Monopoly?

Characteristics of a Monopoly A monopoly occurs when there is only one seller of a product that has no close substitutes. A pure monopoly is very rare, but some businesses come close. Cartels are formal organizations of sellers and producers that work in agreement to set prices and limit production

Historical Monopolies

Three Characteristics of a Monopoly Only one seller – a single business controls the supply of a product that has no close substitutes. Examples: De Beers diamonds Restricted, regulated market – Government regulations sometimes allow a single firm to control a market. Examples: Local utilities Control of Prices – They can set the prices because there are no close substitutes and they have no competition.

Types of Monopolies Natural monopoly – the cost of production is lowest with only one producer. Government monopoly – the government either owns or runs the business or allows only one producer. Technological monopoly – a firm controls a manufacturing method, invention, or type of technology. Geographic monopoly – there are no other producers or sellers within a certain region.

Natural Monopolies Local public utilities fall within this category. It would be a waste of community resources to have several competing business trying to distribute water. A single supplier is more efficient to produce utilities and not worry about competition.

Government Monopolies The US Postal Service is an example of government monopoly. Private firms would not want be attracted to this venture, due to insufficient profit opportunities.

Technological Monopolies Sometimes firms create a new technology that they do not want copied or duplicated. The government allows this by issuing patents, this gives the inventor rights to the invention or process for a certain number of years.

Geographic Monopolies Pro sports teams are an example of a geographic monopoly. The leagues they play in restrict the amount of teams and their location. Physical isolation is another example. Gas stations in rural areas, where the next closest one is 50 miles away can charge much higher prices at the pump.