Monopoly
Also called: monopsony
A monopoly is a market with a single seller and no close substitutes, which lets it set a higher price and sell less than a competitive market would, creating deadweight loss.
Monopolies arise from control of a resource, patents, government licences or economies of scale so large one firm serves the market most cheaply (a natural monopoly). A monopsony is the mirror image: a single buyer.
Related terms
- Oligopoly: An oligopoly is a market dominated by a few large firms, each of which must consider how the others will react.
- Perfect competition: Perfect competition is a market with many sellers of an identical product, free entry and exit, and full information, so no one firm can set the price.
- Deadweight loss: Deadweight loss is the value lost to society when a market produces less (or more) than the efficient quantity, often because of a tax, price control or monopoly.
- Economies of scale: Economies of scale are the cost savings a business gets as it grows: the average cost of each unit falls as it produces more.
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