Monopoly is an extreme form of market structure. The word monopoly is derived from two Greek words-Mono and Poly. Mono means single and Poly means 'seller'. Thus monopoly means single seller. Monopoly is a firm of market organization for a commodity in which there is only one single seller of the commodity.
In short monopoly is a form of market structure where there is a single seller producing a commodity having no close substitute? Under monopoly there is no rival or competitors. The degree of competition in monopoly is nil. Thus if the buyers is to purchase the commodity, he can purchase it only from that seller. The seller dictates the price to consumers. Unlike perfect competition a monopolist can fix up the price.
As monopoly is a form of imperfect market organization, there is no difference between firm and industry. A monopoly firm is said to be an industry. Thus monopoly means the absence of competition. There are strong barriers to entry into the industry. As a result, seller has full control over the supply of the commodity.
Features of Monopoly:
1. One seller and large number of buyers:
Monopoly is a form of imperfect market structure where there is only one seller of a product. A monopoly firm may be owned by a person, a few numbers of partners or a joint stock company. The characteristic feature of single seller eliminates the distinction between the firm and the industry. A monopolist firm is itself 'the industry. Under monopoly there are large numbers of buyers although the seller is one. No buyer's reaction can influence the price.
2. No close substitute:
Under monopoly a single producer produces single commodities which have no close substitute. As the commodity in question has no close substitute, the monopolist is at liberty to change a price according to his own whimsy. Monopoly can not exist when there is competition.
A firm is said, to be monopolist only when it is the single producer and supplier of the product which have no close substitute. Under monopoly the cross elasticity of demand is zero. Cross elasticity of demand shows a change in the demand for a good as a result of change in the price of another good.
3. Strong barriers to the entry into the industry exist:
In a monopoly market there is strong barrier on the entry of new firms. Monopolist faces no competition. As there is one firm no other rival producers can enter the market of the same product. Since the monopolist has absolute control over the production and sale of the commodity certain economic barriers are imposed on the entry of potential rivals.
4. Nature of demand curve:
In case of monopoly one firm constitutes the whole industry. The entire demand of the consumers for a product goes to the monopolist. Since the demand curve of the individual consumers lopes downward, the monopolist faces a downward sloping demand curve.
A monopolist can sell more of his output only at a lower price and can reduce the sale at a high price. The downward sloping demand curve expresses that the price (AR) goes on falling ns sales are increased. In monopoly AR curve slopes downward mid MR curve lies below AR curve. Demand curve under monopoly la otherwise known as average revenue curve.