MONOPOLY

Literally, "single seller." A situation in which a single firm or individual produces and sells the entire output of some good or service available within a given market. If there are no close substitutes for the good or service in question, the monopolist will be able to set both the level of output and the price at such a level as to maximize profits without worrying about being undercut by competitors (at least in the short run). If demand for the good or service being sold by the monopolist is highly inelastic, prices and the rate of profit in the industry will tend to be higher (and output lower) than under competitive conditions and prices may in fact be noticeably higher than the marginal costs of production for substantial periods of time. To keep new competitors from entering the industry and flooding the market with additional supply in response to the unusually high rate of profit, monopolists historically have typically had to rely in the long run upon some sort of legal barriers to entry erected by government -- either an open grant of protected monopoly that legally forbids competitors to enter the market, or a regulatory regime that in practice makes it almost impossible for new competitors to meet required standards, or perhaps only such more transient barriers to entry as legally protected patent rights or copyrights for essential technology. However, see also entries under barriers to entry, cartel , natural monopoly and competition .