What is a Monopolistic Market?

Malcolm Tatum

A monopolistic market is a type of market setting where at least some of the traits associated with a monopoly situation are present. A market of this type usually exhibits more than a single trait, and there is some difference of opinion as to how strong those characteristics must be in order to truly be considered monopolistic. Market conditions of this nature favor the one or select few suppliers within that market place, since consumers are left with relatively few options and generally must pay whatever the suppliers controlling the market wish to charge.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

On example of a monopolistic market would be a situation where a single supplier controlled 70% of the market, while a smaller competitor controlled roughly 20% of that same market. Between the two, it would be possible to easily determine what range of prices would be charged for the goods or services provided by the two entities. Often, the pricing could be set at a level that allows the two businesses to generate profits based on sales volumes that any other competitors could not possibly hope to manage. The end result is that those smaller competitors are unable to grow market share and are much more likely to eventually fail, leaving the market completely to those two major players.

The creation of a monopolistic market is something that is often discouraged in many nations. In fact, the World Trade Organization has in recent decades actively encouraged nations to enact antitrust laws that would help minimize the potential for this type of situation to arise. The underlying premise is that competition is healthy for everyone involved. Business who are able to function in industries will open competition is the order of the day have a much better chance of thriving, which in turn provides more people with jobs and a source of income. That in turn helps to increase consumer demand for various goods and services and keep the economy of the nation healthy.

By contrast, a monopolistic market is seen as an imperfect competition situation where much damage can be done to an economy. With less competition in the marketplace, employees have fewer options when it comes to securing work with businesses that offer better pay and benefit packages. Employers with a legal monopoly have no incentive to offer competitive wages and benefits, since there are no competitors offering anything better. The end result of this monopolistic market involves employees that are locked into specific pay ranges which may or may note provide the income needed to purchase a number of goods and services, ultimately limiting the ability of the economy to grow.

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