Describe main features of monopoly. 

Main Features of Monopoly.

A monopoly is the opposite of perfect competition because in monopoly, there is just one firm (seller), no competition, no free entry of a new firm and no close substitute of the product. Given below are its main features.

(i)    Single seller of the commodity. There is only one seller or producer of a commodity in the market. This may be due to copyright, patent law or state monopoly. As a result, the monopoly firms has full control over the supply of the commodity. The monopolist may be an individual, a firm or a group of firms or a Government Corporation or even government itself. Naturally a monopoly firm can exploit the buyers by charging almost any price for its product because of exclusive control over supply of the product. Monopoly firm itself is the price maker and not the price taker. As compared to a single seller in the market, there can be any number of buyers of the product in the monopoly market.

(ii)    Absence of close substitute of product. A product faces competition when it has close substitutes. The product sold by the monopolist has no close substitute. Though some substitutes of the product may be available yet they are not close substitutes in the sense that such substitutes may be too costly and inconvenient to use. As a result, the consumer will have to buy the commodity from the monopolist or go without it altogether. Thus a monopolist does not face competition.

(iii)    Difficult entry of a new firm. The monopolist controls the situation in such a way that it becomes very difficult for a new firm to enter the monopoly market and compete with the monopolist by producing a homogeneous or identical product. The monopolist tries his utmost to block the entry of a new firm. This barrier can be economic, institutional or artificial in nature. As a result, a monopoly firm earns abnormal profit in the long run due to blocked entry of new firms.

(iv)    Negatively sloped demand curve. The demand curve (or AR curve) facing a monopolist is negatively sloped which indicates that a monopolist can sell more only by lowering price, i.e., price has to be reduced to sell additional units, [see Fig. 4.5(a)]. Since monopolist is the only seller in the market, therefore, the demand curve facing him is the market demand curve. Again because the monopoly firm decides the output and price itself, therefore, there is no supply curve as such under monopoly.

(v)    Price maker with constraint. Since a monopoly firm is the only seller, it has substantial influence over the price of its product by manipulating its supply. It is in this sense that a monopolist is said to be a price maker. But his influence over price is not total. Price is determined by forces of demand and supply and a monopolist controls only supply. Therefore, in monopoly as output increases/decreases, price changes in accordance with what consumers are willing to pay along the demand curve. It produces product to satisfy the entire market and thus faces the market demand curve. Unless the demand curve of the product is totally inelastic, market demand curve is said to be a constraint facing a monopoly firm. Mind, a monopolist firm can no doubt, charge any price but it cannot sell any quantity at that price. Hence demand curve is a constraint.

(vi)    Price discrimination. Unlike uniform price at which a product is sold in perfect competition, a monopolist can charge different prices for his product from different persons and in different market areas. In other words, price discrimination takes place in monopoly.