Question

Provide an example of a monopoly and explain how the firm maintain its monopoly power and keep competition out.

Answer 1

Ans: A monopoly is a market situation in which there is only a single firm selling unique product to the large number of sellers.

The real life example of a monopoly is difficult. However, there are some markets which are upto a certain extent can be considered as a monopoly. For example, utilities market in the US like providers of water, natural gas and electricity companies.

These companies maintain their monopoly power and keep their competitiors out of the market because of the following reasons:

(a) Some firms have patent rights on their products. So, other firms cannot sell them in the market.

(b) Some firms are directly regulated by the government, so it becomes difficult for other firms to enter into the market and compete with them.

(c) These firms have technological advantge where they can produce the products at a very lower cost than any other firm. So, they can charge low prices and attracts the market demand. Hence, other firms cannot compete with them.