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8 Factors that Gives Rise to Monopolistic Market

8 Factors that Gives Rise to Monopolistic Market: The term “monopoly” refers to a scenario in which one individual or a business is the sole seller in an industry or a market. In other words, if a person or business receives all of the demand for goods and services, the person or firm is operating a monopolistic market or trade. Sellers engaged in monopolistic commerce exploit the market by charging exorbitant prices to clients due to a lack of competition.

Monopoly can be natural, implying that other individuals are disinclined to enter the same area of business as the solitary merchant. This is frequently driven by the high cost of capital and the fact that profit does not compensate for the cost of capital. The state can manage a segment of the market, making it more difficult for competition to develop in that sector. Public services such as train transportation are an example.

Monopoly’s Major Causes

1. High capital requirements: It takes a significant amount of funds for an individual to start certain enterprises. This may explain why the State may choose to monopolize some sectors, such as oil and gas, railway transportation, and so on, depending on the Nation’s economic plan.

It’s rather difficult to compete gladly with a high-octane firm. How many individuals are capable of leveling the market playing field through capital investments of millions of dollars? Thus, the calculation is quite straightforward: the higher the cost of capital, the less competition there is, and vice versa.

2. Resource Control: If a firm or company owns all of the resources, it can monopolize the business of mining and utilizing them. It may no longer be possible in the modern era, as commerce has expanded beyond national borders and can now be global in scope.

As a result, start-up businesses can import the same resources from other countries and compete in the domestic market.

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Nonetheless, there are scarce resources that are only accessible to a capable organization, and because these resources are largely controlled by the corporation, it will be a long time before competition occurs.

3. Legal Protection: Governments can provide corporations legal protection to engage in a type of commerce that no other business or company can engage in, so creating a monopoly in that trade. This is accomplished through the issuance of patents. By law, a patent holder owns the right to commercialize the same goods or service.

Before a patent may be issued, several conditions must be met, and once these standards are met, no other company can reproduce the patent holder’s products or services. That would constitute a violation of rights.

4. New Markets: Establishing a market that has never existed before creates a monopoly. This is because the trader opened the market in the absence of anticipated competition or in the absence of any prospect of future rivalry. A good example is a business that is involved in the development of flying autos. This is cutting-edge technology, and whoever establishes a business of this nature for the first time naturally monopolizes manufacturing and distribution.

If the preceding example seems implausible, another is the well-known software manufacturing giant Microsoft. It was founded by Bill Gates and now commands a market share of more than 75%, making it the monopolist in the technology sector. As the first of its generation, it has dominated the global market for many years. Expecting a competitive service provider on the scale of Microsoft may be impossible unless a subsidiary firm succeeds. It is yet to be determined.

5. The business with the potential for low profits: Business planning entails understanding the relationship between investment and dividend and selecting the appropriate business to engage. A prudent businessperson should be suspicious about establishing competition when the danger appears to be larger than the profit. That is why certain trades receive less attention from businesses due to the poor earnings they generate.

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Potential competitors have noticed that the already existing business is not profitable. As a result, the trader who has already begun the business becomes the lone marketer, which has a number of drawbacks in most circumstances.

6. Tax impositions and restrictions: Traders are concerned that, based on historical precedents, beginning a similar business will result in significant tax impositions and restrictions on both the domestic and international level. Where a country puts tariffs and other embargoes on businesses engaged in import/export trade, competitiveness in the industry may be useless.

7. Geographical Trade: Depending on the geographical location, certain trades may be uncommon in one place but plentiful in another. As a result, clients may be unable to obtain what they seek unless they leave the place and travel to another. Often, this is inconvenient, and one is compelled to settle for what is available.

Consider the case where Royal Deux Plc makes solar equipment in a specific area and the only method to obtain an inverter is to drive a considerable distance to another firm in a different place.

8. State ownership/control: A country may choose to assume control of the market system or a segment of it for economic reasons. It is referred to as nationalisation in other words. The government’s supreme authority is to stifle competition from private persons and/or corporations by exercising complete control over an industry.

While government meddling is rarely excessive in capitalist states, whenever the government wishes to employ this power, it instantly throws present private traders out of business and has the ability to restructure the industry in the process.

In conclusion, we have shown that monopoly offers a number of benefits and drawbacks. Monopoly benefits sole proprietors or traders by allowing them to charge a higher price and earn a bigger profit (all other factors being equal) than they would in a competitive situation. On the other hand, monopoly fosters an illusion of invincibility, which can lead to enterprises becoming complacent about producing high-quality products and services. They can overpay simply because they can, as there is no competition to compete with.

Inferior products combined with a dearth of market innovation only serve to suffocate the sector. Competition breathes life into activities and forces sellers to think creatively in order to outperform their competitors. Leaving an industry’s fate in the hands of a monopolistic corporation will inevitably suffocate its economic growth. The global market is competitive, and the figures run daily, demonstrating how countries develop their economies.

While certain businesses should be monopolized, many others should be open to an infusion of brilliant minds in order to assist development.

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