The most important economic concept in modern society is the definition of monopoly. Monopoly by its definition is a situation where one business controls a major part of the market. In other words, monopoly by definition means that a business enjoys the power to manipulate the prices of a product or services, the supply of a product or services and the amount of investment capital available to invest in a business. This power to control the market results in a monopoly or excessive concentration of economic power in a firm. In monopoly theory, a business monopoly protects the small businesses from competition.
The truth of the matter is that monopoly is a very harsh word in economics. In the free market, competition typically brings about a reduction in prices of products or services, a reduction in quality, or both. A define monopoly in economics is applied to the free market is, "A situation in which a firm is controlled by a single partner." That definition does not necessarily define a business monopoly; however it does highlight that such a situation does occur frequently in the economy.
Another common myth about monopolies is that they are only beneficial to large firms. A more accurate define monopoly in economics is, "A situation in which the output of a business is controlled by a single firm." As previously stated, there are many different forms of monopoly in the economy. A definition of a firm as being a monopoly is more accurate when the monopoly exists among the many small businesses in the market rather than among large established companies.
There are many other uses for a define monopoly in economics. Many political scientists believe that a definition of monopoly is necessary because nations fail to realize the benefits of markets that do not have major monopolistic players in the industry. Many economists also use the define monopoly to explain why economies fail to produce a level of economic growth or productivity. While the above explanations are indeed important when debating the viability of monopoly in the economy, the most important reason that a definition of monopoly is necessary is because no monopoly produces a level of surplus that allows an economy to properly function.
For example, let us look at an economy where one monopoly firm controls all of the valuable resources. All attempts to create more competing firms fail. This leads to a very inefficient economy and the economy eventually collapses. Without a define monopoly in economics, a similar collapse could occur with any large firm owning assets that are non-rivalrous. Monopolies lead to inefficient economies if the owners of these firms do not see the value in operating in an inefficient manner, which also leads to the collapse of the economy.
The above examples of how monopoly leads to inefficient economies are extreme examples. Economists are not necessarily doom and gloom when using the definition of monopoly in economics. Indeed, monopoly is actually beneficial to an economy if the firm establishes a niche within the economy. In this case, a firm that owns monopoly power can serve consumers with goods and services that are better than those provided by competitors. This niche support gives the economy an extended period of growth and development. Define monopoly in economics therefore requires the application of a more flexible definition, which allows for both positive and negative aspects to be brought into play.
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