In a monopoly industry there is only one seller and many buyers. Since it is the only company in the industry, it has the ability to exercise considerable control over price.
Monopoly derives from Greek: “monos” (alone) and “polein” (to sell)
There are several types:
1. Vertical: This occurs when a company controls not only the market but aspects from top to bottom: production, warehousing, distribution, retailing and wholesaling. Examples include Wal-Mart, Microsoft and DeBeers (diamonds).
2. Horizontal: Horizontal monopolies control a market via mergers and acquisitions. E.g.: Microsoft, Rona.
3. Natural: This is a monopoly where it really makes more sense to have only producer of a good or service in a particular area. It is considered pointless to have competition in this particular field. Good examples include natural gas, electricity, water provisions and cable (Rogers, for example)
4. Legal: This is a situation where it is illegal for more than one company to provide a good or service to the public. Mississauga Transit, TTC, Peel District School Board and LCBO are excellent examples.
One buyer, many sellers. Such a business enables the buyer to exercise considerable power over the seller and the price the producer is going to charge. A question often asked is: can a monopsony be a monopoly? The answer is yes…Wal-Mart for one are able to offer low prices because they buy in bulk and demand and are able to pass this on to the consumer.
Monopsonies occur rarely; for example, in a one company town, where there is only one employer and he is able to check demands for higher wages.
Two sellers, many buyers. Neither company can behave as if he has a monopoly because he has to take the other’s production and pricing policies into account. BUT, the opportunity is there for an understanding for the duopoly to limit production, divide markets, and charge monopoly prices. Examples include: Pepsi and Coke, Blockbusters and Rogers Video, Airbus and Boeing and, Sotheby’s and Christie’s n the auction market.
Three sellers, many buyers. Once again a three company market with considerable control over pricing and production. Examples include, GM, Chrysler and Ford in the 1970’s, Sony, Nintendo and Microsoft in the gaming industry and, General Mills, Post and Kellogg’s in the breakfast cereal sector.
Few sellers (more than three), many buyers. These tend to be large in nature and constitute a huge part of the economy. They can, by their nature, exercise limited price competition and are often accused of getting together (colluding) to fix prices and output. Here in Canada, the big banks (CIBC, TD Canada Trust, BMO, RBC and Scotia bank) are an example of an oligopoly. Gas stations in Canada (Shell, Esso, Petro Canada, and Sunoco) are also examples. Other examples include OPEC, Supermarkets and fast food restaurants (KFC, Harvey’s, McDonald’s etc)