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A monopoly is when a single company or entity creates an unreasonable restraint of competition in a market. The term “monopoly” is often used to describe instances where there is a single seller of a good in a market. In a legal context, the term monopoly is also used to describe a variety of market conditions that are not monopolies in the truest sense. For instance, the term monopoly may be referring to instances where:

  • There are only two sellers of a given good (duopoly)
  • There are very few sellers of a given good (oligopoly) 
  • There is a single buyer of a given good (monopsony)
  • There are only two buyers of a given good (duopsony)
  • There are very few buyers of a given good (oligopsony)
  • There are many buyers or sellers, but one actor has enough market share to dictate prices (near monopolies)

In essence, the term monopoly may be used any time that a market for a good is controlled by a limited number of actors. 

In the United States, monopolies and monopolistic behavior are highly frowned upon. Monopolies remove consumer choice, and often lead to higher prices for lower quality goods and services. It is for this reason that most monopolies are made illegal with antitrust laws. For instance, the Sherman Act bans monopolistic behavior, and attempts to monopolize a given market with the intent to destroy competition. 

However, despite the general animosity towards monopolies, not all monopolies are illegal. Examples of permissible monopolies include:

  • A public franchise, where the government bans for certain goods or services, (ex. the US Postal Service)
  • A natural monopoly, where the costs of having additional competitors outweigh any benefit (ex. utilities and power supply)
  • Monopolies created by patents, copyrights, and trademarks
  • Monopolies created purely by one seller having a superior product, business acumen, or having good fortune (ex. online search engines, social media sites) 

Legal monopolies, such as a public franchise monopoly, are often subject to price controls. Monopolies created by patents, copyrights, or happenstance generally are not price controlled. 

[Last updated in July of 2023 by the Wex Definitions Team]