Why Are Monopolies Rare?
Few of the firms that sell the goods and services you buy are monopolists.
Some may be very large in their respective industries—such as the
companies that sell you Internet services or publish the textbooks you
buy or sell the breakfast cereal you eat—but they are not pure
monopolists, with 100 percent of the market.
The main reason monopolists are so rare is that when they do exist they
tend to earn very large profits, and this profitability quickly attracts other
firms into the industry. When those other firms enter the industry, the
first firm is no longer a monopolist. As a result, it is more common for an
industry to contain a few large firms (an “oligopoly,” discussed in Chapter
11 ) than it is to have one monopoly firm.
In the rare circumstances where a monopolist is able to persist, it is
usually either heavily regulated by government or, as in the case of
Canadian electric utilities, owned outright by government. The
government involvement is usually motivated by a desire to ensure that
the monopolist is not able to set a high price and restrict output in such a
way as to significantly reduce market efficiency, as we see in Figure 10-
3.