What is a pure monopoly?

A pure monopoly occurs when there is only one producer or seller of a certain product or service in a market with no close substitutes. This gives the monopolist significant market power, allowing them to control prices, output levels, and overall market conditions.

Pure monopolies often arise due to factors such as high barriers to entry, legal restrictions, control over essential resources, or economies of scale that prevent other firms from entering the market and competing with the monopolist.

As the sole provider in the market, a pure monopoly can potentially earn high profits by setting prices above marginal cost and limiting output. This can be detrimental to consumer welfare as it may lead to higher prices, reduced choice, and decreased innovation.

Pure monopolies are typically regulated by government authorities to prevent abuse of market power and to ensure fair competition. Antitrust laws may be enforced to promote competition, protect consumers, and prevent monopolies from engaging in anticompetitive practices.