Once developed, the drugs could easily be replicated by competitors. Why would the government issue a patent? Pharmaceutical companies spend millions of dollars developing new drugs. Patents are government-granted monopolies because patents make it illegal for a company other than the patent-holder to produce the same good for ten years. A company has an economy of scale when increasing production reduces the average total cost to produce a unit because the high fixed costs are averaged over a greater number of units.Ĭompanies with patents have another type of monopoly. An economic barrier exists when one company can furnish a good or service more efficiently than several companies because the industry has economies of scale. Monopolies exist because entry into an industry is blocked economically or legally.
The availability of substitutes reduces a monopoly’s power.
They might adjust their thermostats or switch from using electricity to natural gas to heat their home. Families will make greater efforts to conserve when prices are higher. Governments regulate most monopolies to limit their pricing power, but monopolies are still subject to the law of demand. The absence of competition creates pricing power for monopolies. A monopoly exists when one company serves a market for a specific good or service. Electrical utilities could substantially increase their price before people would stop purchasing from them. Would you be willing to pay more than you are already paying? Probably.
Now imagine there is only one provider of electricity in your community.
#Monopoly def free
View FREE Lessons! Definition of Monopoly:Ī monopoly is a market structure with a single seller offering a unique product.
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