Types of Monopoly – Pure, Natural and Government-Granted
There are three types of monopoly markets: 1. Pure monopoly, 2. Natural monopoly, and 3. Government-granted monopoly.
Types of Monopoly
1. Pure monopoly
A pure monopoly exists when there is only one supplier in a market. This pure monopoly has total control over the market and dictates the supply of what they produce. It is hard to come across a pure monopoly because monopolies exist alongside weaker competitors in the real world.
Pure monopolies often thrive in supplying public utilities. For instance, most railway companies are pure monopolies in their market of operations. They are regulated by the government in such states and offer transport services hard to find being offered by private entities.
With the example of a railway company, a pure monopoly company has no substitutes. Think of it like this: the railway transport provider in your country is the sole provider of such services.
You don’t often see these pure monopolies because of high stake resources controlled by such companies. Consider NASA, a company that has controlled space explorations for decades.
If you were to start a company that competes with NASA, you would go through unimaginable legal barriers, raise huge startup capital, and develop your brainchild technology to explore space, among others.
These high entry barriers maintain pure monopolies.
2. Natural monopoly
Natural monopolies exist where they control the supply infrastructure. Firms controlling such infrastructures could patent and copyright such resources to prevent new firms from using them. These firms have high economies of scale and a solid competitive edge in major cases.
Take, for instance, an electricity supply company. Their electric power reaches you through cables at home, school, or office. The company supplying electricity owns the poles on which they hoist cables from the power generating plant to the consumer unit.
They will not allow you to use their poles and hoist your cables if you are to supply electricity. Erecting poles on private or public land to supply your customers with power would be a nightmare. The system will work against you to lay down infrastructure for supplying electricity.
Natural monopolies have systems to smoothen their path of establishing infrastructures to supply utilities and other products ad services. These monopolies are guided by highly knowledgeable lawyers on how to use peoples’ properties.
You probably don’t have such a system of lawyers on your side. Starting this on your own will prove impossible.
3. Government-granted monopoly
The government sets up these monopolies to provide the public with essential goods and services. The government uses its constitutional power to bar any potential competitors.
Take, for instance, the money printing exercise. This is something that state governments hold dearly for themselves. In your state, the government will only allow the printing of money through the central banks. This does not mean there is no one else who can print money.
With resources, even a small-scale company can print high-quality notes and coins. However, the government understands the value of money and its economic implication. This is why it is a privilege reserved only for the central bank. It is the only institution that can print money with a proper understanding of the economic consequences of printing money.
In some jurisdictions, postal mail services are controlled by the government. It is not that you cannot start a mail delivery company; rather, the government wants this to remain its sole privilege.
You could see other forms of monopolies in real life, but largely, they will fall into one of these three types.
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