MONOPOLY MARKET

Monopoly is one of the most distinct kinds of market structure that can be found in any economy. It is that market system wherein there is only one single seller of a product and the product has no close substitutes. ‘No close substitutes’ mean that the demand of the product that is being sold by the monopolist cannot be satisfied by any other product to a great extent. There can be distant alternatives but even that takes time to develop. When there comes a close substitute of the monopolist’s product, the monopoly breaksdown.

A monopolist is referred to be the price maker since there is only one seller of the product that is bought by many buyers. Examples of monopoly market in India could be- Railways, State Electricity Board, etc. Monopoly occurs in those products the manufacture of which requires a large investment, or the supplier of raw materials is very limited.

A monopoly market is characterized by Price Discrimination. Price discrimination is a process whereby the seller charges different prices from different buyers of the same product and same quantity. A monopolist practicing Price discrimination is referred to as a discriminating monopolist. The theory behind such behaviour is the price elasticity of demand for the product. Price elasticity of demand refers to the degree of responsiveness of the percentage change in quantity demanded to the percentage change in its price. A monopolist charges higher prices for those goods and services the demand for which is less elastic and lower prices for those goods and services the demand for which is elastic. This discriminating behaviour of a monopolist enables him to earn greater profit margin. There is one essential condition for enabling effective practice of price discrimination, it is that the markets wherein the seller charges different prices should be separate from each other, that is they must be distinct from one another.

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