Monopoly

Theoretically, a monopoly exists when a single firm produces a product for which there are no close substitutes. From a much more practical perspective, innovation in electronics and communication and laws that have been made to facilitate competition or limit mergers have now made it very unlikely to have a pervasive monopolistic market structure. A monopolist is a price maker because he or she generally has control over the quantity to be produced and the price that will be charged for the quantities produced.

A monopolistic market can be created through patents and licensing (legislation), ownership of essential resources, and economies of scale. A patent gives an inventor the exclusive right to use his or her invention or allow others to benefit from it for a given period of time, thereby giving the inventor a monopoly power for the duration of the life of the patent. A substantial number of businesses, such as General Electric, Pfizer, and Xerox, have made tremendous growth because of patent rights.

As a result of the HIV epidemic, much more recent debates on human rights try to balance patent right (a form of human right) against the right to life (also a form of human right, with peremptory consideration in international law).

[Page 330]Licenses limit competition and entry into an industry or occupation—for example, commercial licenses for taxi-cabs or cable television. Similarly, a firm that owns or controls a resource that is essential to produce certain types of goods may limit or prevent others from using it—for example, the International Nickel Company of Canada, which controls 90% of the world's known reserves, and at one point in time, the diamond monopoly held by the DeBeers mining company of South Africa.

Although a monopolistic market that is generated by falling per unit cost (economies of scale) might be beneficial to consumers, the monopolistic firm is not generally perceived as efficient because of the tendency of the prices charged to exceed the marginal cost and per unit cost when a monopolist is in business. For further reading, see McConnell and Brue (2008).