Monopoly:

We can define monopoly as a market structure where there is a single seller. Monopoly does not imply that there is a single producer, because monopolists need not produce their own output. There would be many producers who supply their product to monopolists. The essence of monopoly is that there is a single seller who sets the price. As an example, we can cite OPEC (Oil and Petroleum Exporting Countries) which consists of the major producers that collectively set the price of oil. A monopolist might not set a single price for all customers and may practice price discrimination, i.e., may charge different prices to different customers.

Other than perfect completion, which is characterised by a large number of buyers and large number of sellers, there is another extreme form of market structure called monopoly. Monopoly is characterised by a single seller who acts as a price setter. Monopolists are called price setters because they select their own price and supply the entire quantity demanded. The word monopoly come from a Greek word 'monos polein', which means alone to sell. For the monopolist to have an effective control over the market, the monopolized product should not have any close substitutes.

The type of monopoly we have been discussing is called pure monopoly where the seller has absolute control over the market. But in the practice that is not usually the case. To measure the control over the market by a particular firm, economists have devised measures  like 'monopoly power'. we will be mainly discussing pure monopoly. There also is 'natural monopoly' which arises from economies of scale. In case of few products (for example, gas production, electricity and telephone), the average cost of production declines over a large range of output and therefore, single firm can supply the output at a lower price than when there are more firms. It is called natural monopoly because of its emergence naturally from the type of product being sold.