THE NATURE OF MONOPOLY Monopoly, like competition, has many different meanings. The term always denotes the existence of a considerable measure of unified control over the supply of a definite commodity in a specific market. But monopoly may be regarded as nonexistent, rare, common, or universal, according to one's more precise definition of the term.
First, in the strictest possible meaning of the word, monopoly may be limited to those cases in which monopoly power is absolute. Monopoly power is the monopolist's ability to augment his profit either by fixing the price at which he will sell and thus, indirectly, the quantity that will be sold, or by fixing the quantity that he will sell and thus, indirectly, the price at which it will be sold. Monopoly power may be said to be absolute only when the monopolist can fix price and quantity without considering the possible effect of his action upon consumers, potential competitors or the state. He can do this only when consumers can neither dispense with his product, purchase a substitute, nor import such goods from another market, when potential competitors can neither make nor import them, and when it is certain that the state will not intervene. These conditions are never fully satisfied. Few products are really indispensable. Few are without close substitutes. Indeed, every one must compete with every other one to obtain the consumer's dollar. Science and invention, moreover, are constantly increasing the possibility of competition and substitution. Market barriers are seldom insurmountable. The threat of public intervention is ever present. Monopoly power, therefore, is always partial, limited, and temporary. Monopoly, in the sense of absolute monopoly power, is practically nonexistent.
Second, in the generic meaning of the word, monopoly may be said to exist only when a single seller controls the entire supply of a commodity. Here the prevalence of monopoly depends upon one's definition of the term commodity. If every product which is in any way unique is to be regarded as a separate commodity, even though the characteristics which distinguish it from similar products be limited to such matters as its superficial appearance, packaging, and brand name, then monopoly in this sense is common. But the possessor of such a monopoly enjoys little
monopoly power, since consumers have the alternative of substituting for his product another which is similar to it. If, however, the whole group of products which serve a common purpose is to be regarded as constituting a separate commodity, the possessor of such a monopoly would enjoy a considerable measure of monopoly power. But monopoly in this sense is rare indeed.
Third, in the strictest sense in which the word is usually employed, monopoly may be said to exist both when a single seller and when a number of sellers, acting in unison through formal or tacit agreement, control the entire supply. Here, again, if the word commodity be broadly defined, monopoly is comparatively rare.
Fourth, in the widest possible meaning of the term, monopoly may be said to exist whenever the conditions under which goods are sold fall short of those which constitute perfect competition. Since perfect competition, like absolute monopoly, is practically nonexistent, monopoly in this sense is well-nigh universal. But the range of actual market situations extends all the way from those that approach absolute monopoly to those that approach perfect competition. The condition which generally obtains is properly to be described not as universal monopoly but as imperfect competition.
Fifth, in the sense in which the word is most frequently used, monopoly may be said to exist whenever a single seller or a number of sellers acting in unison control enough of the supply of a broadly defined commodity to enable them to augment their profit by limiting output and raising price. Here monopoly is defined in terms not of absolute but of appreciable monopoly power. Monopoly in this sense is common.