monopoly, market condition in which there is only one seller of a certain commodity; by virtue of the long-run control over supply, such a seller is able to exert nearly total control over prices. In a pure monopoly, the single seller will usually restrict supply to that point on the supply-demand schedule that will maximize profit. In modern times, the accelerated production and competition brought about by the Industrial Revolution led to the formation of monopoly and oligopoly. Since the notion of monopoly is antithetical to the free market ideal, it has never been popular in capitalist nations. In the United States, the most famous monopoly was John D. Rockefeller's Standard Oil Trust in the late 19th cent. Despite such legislation as the 1890 Sherman Antitrust Act (the first significant legal statute against monopoly), it was the Supreme Court that forced the break-up of Standard Oil, along with other monopolies. Since the 1960s, however, the U.S. Justice Dept. has occasionally been more active in attacking monopolies or near monopolies (such as AT&T and IBM); a major case in the 1990s involved the Microsoft Corp. (see Bill Gates).

Many governments, however, have created public-service monopolies by laws excluding competition from an industry. What resulted were generally publicly regulated private monopolies, such as some power, cable-television, and local telephone companies in the United States. Such enterprises usually exist in areas of "natural monopoly," where the conditions of the market make unified control necessary or desirable to the public interest. Some socialists have advocated the extension of the principle of public monopoly to all vital industries, such as coal and steel, that have an immediate effect on the general welfare of the economy. By the 1990s, however, many public utilities in the United States and elsewhere were deregulated, allowing for competition and lower prices (see utility, public).

Aside from utility companies, privately controlled monopolies without state support are rare. However, the concentration of supply in a few producers, known as oligopoly, is not uncommon. In the United States, for instance, several large companies have dominated the automobile and steel industries. Since the Progressive era, the U.S. government has made most forms of monopoly, and to a lesser extent oligopoly, illegal under antitrust laws. The objective of such measures is to guarantee that price will be determined by market forces rather than by arbitrary price setting among corporations. In recent years oligopolies have grown through mergers and acquisitions. The government still grants temporary monopolies in the form of patents and copyrights to encourage the arts and sciences.

Exclusive possession of a market by a supplier of a product or service for which there is no substitute. In the absence of competition, the supplier usually restricts output and increases price in order to maximize profits. The concept of pure monopoly is useful for theoretical discussion but is rarely encountered in actuality. In situations where having more than one supplier is inefficient (e.g., for electricity, gas, or water), economists refer to “natural monopoly” (see public utility). For monopoly to exist there must be a barrier to the entry of competing firms. In the case of natural monopolies, the government creates that barrier. Either local government provides the service itself, or it awards a franchise to a private company and regulates it. In some cases the barrier is attributable to an effective patent. In other cases the barrier that eliminates competing firms is technological. Large-scale, integrated operations that increase efficiency and reduce production costs confer a benefit on firms that adopt them and may confer a benefit on consumers if the lower costs lead to lower product prices. In many cases the barrier is a result of anticompetitive behaviour on the part of the firm. Most free-enterprise economies have adopted laws to protect consumers from the abuse of monopoly power. The U.S. antitrust laws are the oldest examples of this type of monopoly-control legislation; public-utility law is an outgrowth of the English common law as it pertains to natural monopolies. Antitrust law prohibits mergers and acquisitions that lessen competition. The question asked is whether consumers will benefit from increased efficiency or be penalized with a lower output and a higher price. Seealso oligopoly.

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