What's in This Chapter?

A monopoly is an industry in which one seller dominates or controls the industry. There are different kinds of monopolies. Consider, for example, the cable television and Internet industry. One company usually controls the supply of cable subscriptions in a certain area. The government does not allow competition. On the other hand, in the personal computer-operating systems and software industry, the government allows competition. There is only one controlling firm (Microsoft), because the firm is more efficient than its competitors and sells its products at a relatively low price.

The cable firm does not have to fear potential competitors. It does not have to operate at maximum efficiency, and does not have to keep its prices as low as it would if there had been more competition. Microsoft does have to fear competitors, because of the threat of potential competitors (which it is actually experiencing already with competing products, such as Mac computers and Linux operating systems). If it does not operate at high efficiency and if it does not keep its prices low, then it will lose market share. Microsoft may be considered a monopoly or a near monopoly, but, unlike a government granted monopoly, it behaves as if there is competition if it wants to survive.

This unit discusses the two types of monopolies, barriers to entry, calculates how monopolies maximize profits, and describes and evaluates anti-trust laws.