Advantages and Disadvantages of a Monopoly Term Paper

Advantages and Disadvantages of a Monopoly - Term Paper Example The characteristics of a monopoly include the presence of one seller and many buyers in the market, resulting in the seller having total market power on quantity and price. In a monopoly market structure, there are no close substitutes for the good or service supplied by the monopoly resulting in consumers having to purchase at the set price by the monopoly, and lack of perfect information for the consumers (Tragakes, 2011). The other characteristic of a monopoly is presence of high entry barriers caused by factors including high capital requirement, natural causes, and ownership of production resources by the firm. Microsoft ownership of the windows operating system brand is an example when monopoly results from the ownership of a scarce resource in the economy. The other reasons for the high entry barriers in a monopoly include Government Issue of one license and ownership of patent rights for production. The other characteristics in a monopoly market face inelastic price elasticit y of demand owing to lack of substitutes and consumers have to purchase at prices set by the monopoly allowing for abnormal profits (Tragakes, 2011). Monopoly, therefore, produces low quantity and sells at a high price. Examples of monopoly include Feet-First Pharmaceutical and power supply firm in a country where there is only one operating license provided by the government. Royal Mail Group was until 2006, a monopoly for the presence of only one operating license but was opened for competition to ensure efficiency in service delivery (Samuelson & Stephen, 2012). Monopolies have certain advantages in the economy owing to the characteristics of the market they operate. The advantages include stability of the monopoly in terms of changes in economic terms such as a recession. A monopoly consists of one large firm that supplies a product to the entire market owing to high resource