Monopoly is a situation in which there is only a single seller of a particular product in the market. There is no other firm producing and selling the same or the similar product and hence there is no competition from anywhere. The buyers, therefore, have to buy this product only from this particular seller or go without it. Being the sole supplier, the monopolist is, thus, in a position to fix up a price to his own advantage.
The monopoly is absolute or complete, when the single seller of a particular product faces a market in which no close substitute of this product is a available from any other source. Absence of which of any close substitute makes the cross elasticity of demand for monopolist’s product equal to zero. In such a situation the monopolist can dictate his terms, the price that he would charge or the quantity he would like to sell. This power of the monopolist to dictate his terms is called monopoly power. This monopoly power is absolute, if competition from other similar or substitute goods is zero. This would be possible when the monopolist does not only control the supply of this very product, but also of all the close and remote substitutes of the product as well.
However, such complete, monopoly is non – existent today. Monopolist’s powers are generally found diluted due to availability of some remote substitutes of his product. Further the government's policy towards controlling monopoly through partial competition may also reduce the extent of absolute monopoly power. Fear of strong public reaction also keeps a check on the absolute exercise of monopoly power. Thus, ordinarily monopoly may be defined as a market situation in which there is only one seller to supply a particular product, but at the same time some remote substitutes of the product are also available in the market. However, the market situation is such that cross elasticity of substitution for the monopolist's product is low; it is not zero as under absolute monopoly and not high as in an imperfectly competitive market.SUBMIT ASSIGNMENT NOW!