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Knowledge Base

Identifying A Monopoly: It's More Than Just Market Share

Are all big companies monopolies?

No. Most big businesses aren’t monopolies and not all monopolies are big businesses. A company, organization, or service is a monopoly only if there are artificial barriers to entry from competitors.

What is the key characteristic of a monopoly?

The defining characteristic of a monopoly is its ability to keep competitors from offering competing goods or services.

What is monopolistic behavior?

Monopolistic behavior is when a firm charges a higher price for the same good than would otherwise occur in a competitive market. That doesn’t mean that all high prices are due to monopoly behavior. A company that offers a superior product can expect to charge a higher price than a competing product of less quality. But a company that gets to charge higher prices because other businesses aren’t allowed to offer competing services is benefiting from its monopoly status.

What are examples of monopolies?

Recently, there are far fewer national monopolies due to changed attitudes about the development and provision of large industries and from international competition due to freer trade. It used to be true that the government granted monopolies in certain key industries due to the rational that a monopoly was needed to provide that service. AT&T used to have a monopoly on long-distance phone calls, and railroad companies were granted monopolies on freight from one area to another. Now, however, it is more apparent that competition and a free market can provide better quality and cheaper goods in these industries. Instead, monopolies tend to be smaller and more local. Occupational licensing in a state, for example, grants businesses the right to operate once they pay a fee and demonstrate competency in skills. For a long time, taxi cab companies had a monopoly on providing rides in their respective cities, and in some cities they still do. Car dealership associations still have a monopoly on the right to sell cars in some states. And the right to sell high-speed internet or cable television services is controlled by local governments, effectively granting local monopolies to the companies that pay for those rights.

Why are monopolies hard to maintain without laws to protect their business?

Entrepreneurs and investors will always search for the highest return on their investment. When a company in any industry makes a lot of money, other companies will enter that market in search of higher profits. Even the most successful company, when faced with competition from new competitors, will have to lower prices or innovate faster in order to maintain their market position.