Monopoly is a type of market relation in which the entire production industry of one type of product is controlled by only one seller. It is difficult for new firms to enter the market because they face economic, technical, and legal barriers (Bain, 2019). In a monopolistic environment, a vast number of sellers and customers remain on the market, but a product appears with unique properties distinguishing it from similar competitors (Bain, 2019). Such a commodity has no quality or close substitutes, and the buyer has no alternative when choosing. Consequently, the consumer is forced to buy the goods from the monopolist. When a monopolistic position is achieved, the manufacturer dictates the market’s price conditions during the fabrication and sale of a product or service (Bain, 2019). As the only supplier in the entire market for a distinctive article, the monopolist firm set any price to sell it.
The firms following the monopolistic approach have significant advantages over other companies, deriving additional income from their position at other participants’ expense. Market demand in such situations is frequently inversely proportional to price, and the monopolist sets the price that will generate the most significant profit, considering the ratio of costs (Bain, 2019). These economic agents often establish prices significantly higher than the costs of production and receive profits much more elevated than companies’ income in a competitive environment. In addition, monopolistic firms may exhibit behaviors such as limiting output, resulting in substantial increases in selling prices, which is unaffordable in competitive industries. Natural monopolies are common in industries such as telephony or electricity.
Unlike in the context of a monopoly, the conditions of free trade are fulfilled in a competitive environment. In the view of modern economists, ideal competition is a struggle between economic agents for the most efficient use of factors of production (Bain, 2019). Since no individual seller can appreciably influence the market cost, prices are consequently determined by the summary supply of the product by all sellers and the total demand of all buyers (Bain, 2019). Competition affects the relative decline in a firm’s profits as compared to a monopoly.
The subjects of perfectly competitive markets are distinguished by behavior such as continuous improvement factors, based on which the consumer makes his choice in favor of one or another product, in particular, the quality of their commodities, the level of service, and others. In addition, successful competitive agents are extremely flexible and adapt quickly and efficiently to rapidly changing production conditions (Bain, 2019). According to experts, the competitive market process necessarily contributes to eliminating unscrupulous participants and their ousting since the buyer always chooses the product’s best price-quality ratio (Bain, 2019). These conditions do not allow any subject of market relations to be satisfied with what has already been achieved, encouraging the search for new, more attractive, and cost-effective solutions.
It is common knowledge that competition is the basis of the market economy. Being a powerful factor for its self-organization, it automatically leads to the success of those participants who can offer society the most favorable conditions. In addition, it makes it possible to ensure freedom of choice and action for consumers. To a certain extent, the presence of competition carries a particular positive meaning not only for the economy but also for any sphere of public life, in particular, art and science.
Reference
Bain, J. S. (2019). Monopoly and competition. Encyclopedia Britannica.