Monopoly: market power, sources, and law

Definition of monopoly in economics and law

In economics, a monopoly is a market structure in which a single firm is the only supplier (single seller) of a particular good or service. It is typically characterized by the absence of effective economic competition, limited or no viable substitutes, and the ability for the monopolist to set prices above marginal cost—often resulting in monopoly profits. The term “monopolize/monopolise” also refers to the process by which a firm gains the ability to raise prices and/or exclude competitors. In law, “monopoly” is not defined only by being the largest or the only firm; it is tied to having significant market power. Legal discussions focus on the ability to charge excessively high prices and on whether dominant position is associated with unfair or abusive conduct. Holding dominance is often not illegal by itself, but certain categories of behavior by a dominant firm can be treated as abusive under competition (antitrust) law. Monopolies may arise through mergers and integration, naturally (e.g., due to resource constraints or high fixed costs), or through government-granted legal monopolies (such as those associated with patents, copyrights, or state-sanctioned exclusive rights).

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Monopoly versus monopsony and cartels

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