A monopolist produces less output and sells it at a higher price than a perfectly competitive firm. The monopolist's behavior is costly to the consumers who demand the monopolist's output.
Monopolies are generally considered to have disadvantages. However, in certain circumstances monopolies can have various advantages for consumers and social welfare.
The presence of economies of scale in the delivery of water supply and sewerage services is one of the major rationales for economic regulation in the sector. Yet, the question arises how “natural” natural monopolies are. The fact that economies of scale change over time, and that they may decline when the countries’ economies become more developed suggests that regulation has to adapt to the dynamic environment in which it is operating.
Markets with natural monopoly characteristics are thought to lead to a variety of economic performance problems: excessive prices, production inefficiencies, costly duplication of facilities, poor service quality, and to have potentially undesirable distributional impacts.
Market concentration is a function of the number of firms in a market and their respective market shares. As an aid to the interpretation of market data, the Agency will use the Herfindahl-Hirschman Index ("HHI") of market concentration. The HHI is calculated by summing the squares of the individual market shares of all the participants.
Monopolistic competition does not have all the desirable properties of perfect competition.There is the normal deadweight loss of monopoly pricing in monopolistic competition caused by the markup of price over marginal cost. However, the administrative burden of regulating the pricing of all firms that produce differentiated products would be overwhelming. Another way in which monopolistic competition may be socially inefficient is that the number of firms in the market may not be the “ideal” one. There may be too much or too little entry.
A geographic monopoly occurs when one firm is the sole provider of a good or service in a geographic region - a town, a city, a metropolitan area, or other region. It typically results when a market is unable to support two firms that produce essentially the same good or service.
The antitrust laws proscribe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the facts of each case. Courts have applied the antitrust laws to changing markets, from a time of horse and buggies to the present digital age. Yet for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.
A second way to control the market power of monopolies is through nationalization, in which the government owns and operates the monopoly. Examples of nationalized monopolies in the United States include the U.S. Postal Service, most municipal transportation systems, and the Tennessee Valley Authority, which supplies electricity to several southeastern states.
Monopoly is a situation where there is a single seller in the market. In conventional economic analysis, the monopoly case is taken as the polar opposite of perfect competition. By definition, the demand curve facing the monopolist is the industry demand curve which is downward sloping. Thus, the monopolist has significant power over the price it charges, i.e. is a price setter rather than a price taker.