What Is a Monopoly?
A monopoly is a type of economic condition in which one company controls enough of a certain product or service that it can effectively determine access to it. Basically, this means that if a company was the sole seller of sprockets, then it would be able to control the price and distribution of sprockets because demand will necessarily outweigh supply. A monopoly is also characterized by the lack of competition to the company which holds the monopoly.
Examples of Monopolies
This may still be a vague description of what a monopoly is, so an example from history may help us understand how a monopoly is able to control a product and the consumers who need to buy it. In the 1920’s, Standard Oil had such a large market share of the petroleum market that its founder, John D. Rockefeller, became the richest man in the world. Because customers had so few alternatives to Standard Oil, they were forced to pay the prices dictated by the Rockefeller family.
Monopoly and the Law
Because monopolies can effectively take advantage of consumers, there are laws in most developed countries protecting citizens from monopolies. Often, these laws do not necessarily prevent monopolies, but rather the abusive tendencies monopolies employ to drive up their profits, such as:
- Predatory pricing to undercut competitors into bankruptcy
- Limiting supply to drive up prices
- Exclusive dealing to further the monopoly
Contact Us
For more information on the distinguishing characteristics of a monopoly, contact the Austin business lawyers of Slater, Kennon & Pugh Ltd.LLP by calling 512-472-2431.