In a monopoly, there is only one seller in the market. Because of this, the seller has complete control over all aspects of pricing and output decisions.
The firm can control:
A geographic monopoly occurs when there is only one firm selling the output in a particular market. Because no other firms are producing the goods, it’s impossible for this firm to compete with itself. This means that a single seller can control both the price and quantity of a good or service.
In its purest form, a monopoly looks something like this:
A product-form monopoly is a type of monopoly created by a product that is unique and not easily copied. An example of this kind of monopoly patents. Patents give their owners the right to prevent anyone else from manufacturing, using, or selling the patented item for a period of time—usually 20 years. This means that if you want to create your own version of the product and sell it yourself, you'd have to get permission from the owner first.
A technological monopoly is a market condition in which there is only one producer that can supply the good or service at a lower marginal cost than any other firm. The firm can set a price that is higher than its marginal cost of production, allowing it to make profits.
The most important example of this type of monopoly takes place when a new technology is invented. In such cases, there may be no competitors with similar products on the market and thus no competitive pressure to reduce prices. This was true during the early years of telephone service: Alexander Graham Bell patented his invention in 1876 but did not produce any phones until years later due to a lack of demand for them; once demand increased, however, he had little competition from other inventors who might have produced similar devices at lower costs (and therefore forced him into lower prices).
A natural monopoly is a monopoly that exists due to the high costs of competition and duplication of infrastructure. Examples include water, gas, and electricity distribution. In these industries, it would be very costly for more than one firm to set up infrastructure in an area. This means that when a natural monopoly exists, there will only be one firm producing the good or service within that area.
The economic theory behind this type of monopoly is similar to other types: it arises when there are economies of scale and it makes sense for a single firm to produce at its minimum cost given that demand is relatively constant over time (that is why firms don't go bust overnight). However, unlike other types of monopolies where competition can bring prices down even further (and possibly eliminate them completely), natural monopolies cannot because they face no direct competition!
State-created monopolies are exactly what they sound like: monopolies created by the government.
State-created monopolies are a form of state capitalism, in which the government owns or controls major industries. They're common in socialist countries and communist countries, where the government owns all or most industries in an effort to control the production and distribution of goods.
When you hear about how "socialist" or "communist" countries have state-owned companies that provide basic necessities for citizens at subsidized rates—like healthcare and education—that's how you know we're talking about state-created monopolies!
A monopoly that is beneficial to the public is called a "desirable" monopoly. An example of a desirable monopoly would be one that provides clean water and sewage services. The cost of providing these services at a high-quality level would be prohibitively expensive if they were provided by many competing companies, so there should be only one company in charge of this process.
Even though they are usually considered bad, monopolies can sometimes provide benefits to society as well as disadvantages. For example:
Harmful monopolies are created by the government, ostensibly to protect the public good. But they don't. In fact, these monopolies often end up harming society. Take for example the United States Postal Service (USPS). The USPS is a government-sanctioned monopoly that has a monopoly on delivering first-class mail across the country. Its main goal is to deliver mail quickly and reliably at affordable prices; however, it has failed spectacularly since its inception in 1971 due to mismanagement and corruption that have plagued it ever since. Customers can't take their business elsewhere because there aren't any other options available—the USPS effectively holds all of us hostage with their low-quality service!
In a monopoly, one company owns the entire market.
In a pseudo-monopoly, the government creates barriers to entry or advantages for one or more companies so they have control over their industry.
This gives them an unfair advantage over other firms in the industry and allows them to charge higher prices than they otherwise would be able to get away with.