What is a Monopoly?

Everyone's heard of the term monopoly, even if only in the context of the popular board game. Most people have negative feelings about the term, but might not know why. And while many people know what a monopoly is, many more do not, even though they can be greatly affected by such a condition.

Put simply, a monopoly exists when one company or individual controls a type of good or service to the point where they can affect the access consumers have to it. That is, one source is able to control how people get a product or service, and can determine how much it costs and how available it is, since there is no competition for the goods.

One of the most famous examples of monopolies in US history is Standard Oil. Standard Oil was founded and run by John D. Rockefeller, America's first billionaire, and the company effectively controlled petroleum in the United States for decades.

While the US is a capitalist country and therefore favors free trade, there are laws in place to protect consumers from the predatory practices of monopolies. While large market shares do not necessarily indicate monopolies, and monopolies are not, strictly speaking, illegal, taking unfair advantage of the situation is. If a company is exhibiting abusive behavior, they could be running the risk of being brought into court for having an illegal monopoly. In general, abusive behavior can be categorized as the following:

• Predatory pricing, or selling the product or service at such a low price that other companies cannot afford to compete
• Limiting the supply of the goods or service, to drive up price
• Refusal to deal, or limiting who can buy the product or service
• Tying products, or forcing consumers to buy one product in order to have access to another, distinct product

If a company or individual is abusing the power of their monopoly, the US government may step in to protect consumers. In the case of Standard Oil, the company was forced to dissolve itself into several smaller companies to ensure that there was competition in the marketplace, thus allowing consumers a choice and preventing one company from controlling the price and distribution of much-needed oil. Some of the companies formed out of Standard Oil still exist, namely ExxonMobil and Chevron.