Conditions for Monopoly
In a perfectly competitive market, there are many firms, none of which is large in size.
In contrast, in a monopolistic market there is only one firm, which is large in size.
This one firm provides all of the market's supply. Hence, in a monopolistic market,
there is no difference between the firm's supply and market supply.
Three conditions characterize a monopolistic market structure. First, there is only one
firm operating in the market. Second, there are high barriers to entry. These barriers
are so high that they prevent any other firm from entering the market. Third, there
are no close substitutes for the good the monopoly firm produces. Because there are no
close substitutes, the monopoly does not face any competition.
Barriers to entry. A barrier to entry is anything that prevents firms from entering a
market. Many types of barriers to entry give rise to a monopolistic market structure.
Some of the more common barriers to entry are
1. Patents: If a firm holds a patent on a production process, it can legally exclude
other firms from using that process for a number of years. If there are no other
production processes that can be used, the firm that holds the patent will have a
2. Large start