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Monopoly

In this lesson, students will be able to identify characteristics of a monopoly.

Students will be able to identify and/or define the following terms:

Monopoly

Natural Monopoly

Patent

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A monopoly is a market dominatedby a single seller.

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Monopoly

• A monopoly is a market dominated by a single seller.

• In general, monopolies are illegal.

• Monopolies lead to higher prices, inferior quality of products, and reduced supply.

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Monopolies can lead to higher prices.Monopolies do not benefit consumers.

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Antitrust Laws

• The government generally prevents monopolies from forming or breaks up existing monopolies.

• Antitrust laws are laws that prevent the formation and continuation of monopolies.

• The government recognizes that monopolies do not benefit consumers.

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The government carefully watches market activity and prevents the formation

of most monopolies.

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Natural Monopolies• However, the government does allow the

formation of some monopolies.

• A natural monopoly occurs when a market runs most efficiently with one firm supplying all of the output.

• An example of a natural monopoly is public water.

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Rather than building an overlappingnetwork of pipes, one company serves

customers best.

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Patents

• A patent also provides a supplier with monopoly power.

• A patent is a license given to the inventor of a product to be the sole supplier of the product for a number of years.

• A patent is an incentive for invention.

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Nextel had a patent for a number ofyears on one of its phone features.

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The Market Spectrum

• Perfect competition is vastly different than a monopoly.

• In perfect competition, many sellers sell identical products.

• In a monopoly, a single seller is the sole supplier.

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The old monopolies have been broken up.

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The phone company was once a natural monopoly. The government

has since deregulated it.

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Questions for Reflection:

• Define monopoly.

• List three problems created by monopolies.

• Why does the government enforce Antitrust laws?

• Why is public water a natural monopoly?

• What happens when a market is deregulated?