Monopoly

Monopoly
Definition of Monopoly:

* A pure Monopoly is defined as a single seller of a product. i.e. 100% of market share.
* In the UK a firm is said to have Monopoly power if it has more than 25% of Market share
* Measuring Market Power: The Concentration ratio measure the market share of the leading firms in a particular industry.

Monopoly Diagram
monopoly
How Monopolies can develop

1. Horizontal Integration. Where 2 firms join at the same stage of production, e.g. 2 banks such as TSB and Lloyds
2. Vertical Integration. Where a firm gains market power by controlling different stages of the production process. A good example is the oil industry. Where the leading firms produce, refine and sell oil
3. Legal Monopoly. E.g. Royal Mail or Patents
4. Internal Expansion of a firm. Firms can increase market share by increasing their sales and possibly benefiting from economies of scale
5. Being the First Firm e.g. Microsoft