Monopoly Power: Definition, Sources & Abuse

Instructor: Temante Leary

Temante has taught college Business, Law and Criminal Justice courses. He has a master's degree in business and a juris doctorate (law) degree.

In this lesson, we will learn the definition of monopoly power. We will learn how monopolization applies in a business law and economic context. In addition, we will look at some examples of monopoly power.

What is Monopoly Power?

Have you ever played the board game Monopoly? If so, then you know the strategy for winning the game -- and becoming the monopolist -- is to control the entire economy. But this strategy sometimes exists outside of board games as well. In the business world, monopoly power happens when there is only one seller in a market.

For example, let's say Comcast was the only cable television provider in your area. If you wanted to hook up your cable, you would have no choice but to go to Comcast. Because of this, Comcast would know they could charge you whatever they want, and if you wanted cable, you would have to pay.

Monopolies are Not Allowed Under Antitrust Law

In rare cases, monopolies are allowed to operate by the federal government, but as a general rule they are illegal under United States antitrust law and are highly discouraged. The United States has a general philosophy of our economy being a free marketplace with open and fair competition for anyone to enter and operate.

Antitrust law governs monopoly power. The law dictates that a business may be a monopolist even if it is not the only seller or service provider in the market (more on this below). Antitrust law also holds that size alone does not determine whether a firm is a monopoly. For example, a family owned grocery store located in an isolated mountain town is a monopolist if it is the only grocery store serving that particular market.

The Main Idea Behind Prohibiting Monopoly Abuse

Why does the antitrust law exist? The government does not want you to be the only one selling a particular good or providing a particular service because they want everyone to have a choice of where or who they want to buy from. In the Comcast example above, the government wants you to have a choice of who to buy your cable from. The government also wants you and anyone else who has a desire to be able to be able to provide your cable service if you want, not just Comcast from the example above.

What Matters in Proving Monopoly Power

When proving that a business has a monopoly power, what matters is the size of the business in relation to the area of business and customers served. This is because monopoly power literally involves the power to affect prices as well as the amount of a good or service offered. Monopoly power may be proved by direct evidence that a business used its power to control prices and restrict how much of a good or service is offered. Monopoly power may be proved indirectly by showing that the business has a dominant share of the market and that there are significant barriers for new business competitors to enter the market.

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