A situation in which a single company seller selling a unique product in market-creating high entry barriers to other business In a monopoly business, the seller faces no competition
What is a monopoly?
A monopoly refers to when a company and its product offerings dominate a sector or industry. An extreme consequence of monopoly free-market capitalism can be assumed that in the absence of any restrictions or restrictions, a single company or group becomes sufficient for all or almost all markets (goods, supplies, commodities, infrastructure, and assets). is. A particular type of product or service. The term monopoly is often used to describe an entity that has total or near-total control of a market.
Monopolies typically have an unfair advantage over their competition because they are either the sole providers of a product or control most of their product’s market share or customers. Although monopolies may differ from industry to industry, they share the same characteristics:
- High or no barriers to entry: Competitors are not able to enter the market, and monopolies can easily prevent competition from developing into a foothold in the industry by achieving competition.
- Sole Vendor: There is only one vendor in the market, which means that the company becomes like the same industry it serves.
- Price maker: The company operating the monopoly decides the price of the product that it will sell without taking into account its competition. As a result, monopoly can raise prices at will.
- Economies of scale: Monopolies can often produce at a lower cost than smaller companies. A monopoly can buy a large amount of inventory, for example, usually a volume discount. As a result, a monopoly can reduce its prices so much that smaller competitors cannot escape. Essentially, monopolies can engage in price wars due to their scale of manufacturing and distribution networks such as warehousing and shipping, which can be done at a lower cost than any competitor in the industry.
Natural Monopolies can Reduce Costs
A natural monopoly, like water and sewage systems, can prevent infrastructure duplication and thereby reduce potential costs to consumers. Natural monopolies run by non-profit organizations and local governments can keep prices low enough to provide services to the majority of the public. When monopoly is for privately held profit organizations, prices can be much higher than in a competitive market. As a result of higher prices, fewer consumers can afford a good or service, which can be harmful in rural or poor settings.
Economic Repercussions of Monopolies
Some argue that monopoly is beneficial because highly profitable companies pump more money into research and development. Because monopoly is in an effective position, it can comfortably bear the risks associated with innovation. However, there may be little incentive to improve a highly profitable monopoly because consumers still display the need for their current product or service. In comparison, businesses in a competitive market can compete by making changes to existing products and services and lowering prices.
The monopoly ensures that there are high barriers to entry and thus no free ride or adaptation to their current patent. In a monopoly industry, the labor force may be significantly less than in a competitive industry.
How to create a monopoly
A business organization needs to break or change the rules and create a new force by adopting a monopoly success formula. This formula will in turn enhance the business firm into an achievement of success and profitability. Because being in a competitive market it makes you face more marketing challenges, while a monopoly market actually leads you to grab the entire market share. Monopoly is the situation where an organization can regulate the price of products and services by creating various entry barriers for other players to cut competition.
Intellectual Property Protection
If you have come up with a new trade secret, preserve it by obtaining exclusive legal rights from the government to have limited monopoly power in the market. It is the way to grow your business by creating an entry barrier in the market. For example, the pharmaceutical industry manufactures two types of drugs; One is normal and the other is molecular. Generic medicines are made for general utility, such as substitutes for others but molecular medicines are made exclusively through advanced research and development conducted by the pharma company, someone else using the formula due to a patent mark on it does not make.
Strong Distributor Network
There should be a strong distribution channel with business partners which helps in taking competitive advantage. Long-term cooperation can be ensured by providing reasonable marginal value to the intermediaries directly or indirectly associated with the middlemen. The objective of this strategy is to create a good entry barrier in the market.
According to your nature of business, exclusive access to an international product to sell indigenously can be reserved by taking a grant from the country concerned. This strategy helps to create differentiation in the market. For example, some mobile phone companies give exclusive rights to retailers such as Flipkart and Amazon.
Economies Of Scale
Another strategy for an entrepreneur to create a monopoly is to sell large quantities of products at low margins. The policy of centralized procurement adopted by companies generally increases the scale of business which leads to a decrease in average cost per unit. This economy of scale strategy discourages competitors to enter the market. Electric power, domestic utilities and gas services are some examples of economies of scale.
With the uniqueness of your technology, it not only allows you to increase the competitive advantage of your business but also makes it impossible to replicate your product. This is another form of licensing strategy that allows businesses to build customer loyalty.
High Capital Investment
You can create an entry barrier by investing in new technology such as Reliance adopting a marketing strategy for “JIO” in the networking segment. New invention or research tends to create a monopoly in the market. Existing firms can also create an entry barrier by investing in new market technologies as per the market requirement.
Creating a good brand name can be another strategy to create a differentiation in the market and increase customer loyalty. It is the value that produces a perceptual experience in the minds of customers for a particular product.
- M-seal, although its product name is epoxy compound, became widely popular among customers through advertising campaigns as M-seal, its name synonymous with the product type.
Logic Beyond Loyalty
In a particular region or community, loyalty beyond logic can be built by providing products and services that connect to their belief system.
- The health care company Hamdard became so famous among practitioners of Islam in Hyderabad, that he never used the products of other companies, even when they sold at discounted rates.
- Once Hamdard stopped making products due to the strike, although he started using Baidyanath’s products, Hamdard returned as soon as he resumed manufacturing products due to his loyalty beyond logic.
- Implementing the above 10 important tips on how to create a monopoly in business will definitely help you become the king of the market by creating an entry barrier for competitors
Why a Monopoly Is Created
While governments usually try to prevent monopoly, in some situations, they themselves encourage or create monopolies. In many cases, monopolies created by the government are the result of economies of scale benefiting consumers by reducing costs. Utility companies that provide water, natural gas or electricity are examples of entities designed to benefit from economies of scale. For example, the cost to consumers if each of the 10 competing water companies had to dig local roads to run proprietary water lines in every household in the city. The same argument holds true for gas pipes and power grids.
In other cases, such as government policies that govern copyright and patents, governments are trying to encourage innovation. If the inventors had no protection for their inventions, then all their time, effort and money would be wasted, writing books, recording songs and conducting research and development to create new drugs to fight disease Will when another company is able to steal the idea. Create a competitive product at a low cost.
Some example is taken from Dr. Vivek Bindra the founder and CEO BadaBusiness and Author of 10 High Power Motivational Books, which are available on Flipkart and Amazon