Question

Explain Three (3) main characteristics of a monopoly.

Answer 1

Characteristics of Monopoly:

1. Single Producer: A monopoly is characterised by a single producer that has no close substitutes in the market.. For example, electricity, telephone and other public utilities. The main factors contributing to this feature are- access to key raw materials not available to others or specific knowledge of certain techniques of production. For instance, the Aluminium Company of America dominated the aluminium industry prior to WW 1 as it had access to almost all bauxite supply back then.

2. Price Discrimination: A monopolist can control the price and quantity of its products at its will and still dominate the industry. Many MNCs charge different prices for the same product in overseas markets and still make profits due to the brand image enjoyed by the firm's products.

3. High Barriers to Entry: Barriers to entry may be imposed by the government or may be inherent in the cost structure of the company.Efficiency in production like innovative ability, managerial strength, financial strength lead to lower costs of production that help a firm realise economies of scale that ultimately create a major barrier to entry for other firms. Google is a good example in this case.