Monopoly exist for one or more of four reasons. First, one firm may control the entire supply of a basic input. Third, a firm may acquire control over product through a patent on a basic process of production or the product itself, e.g. IPRs like a drug patent. Fourth, a firm may become a monopolist because government awards an exclusive market franchise, e.g. electric power, water supply, etc. While a monopoly may exist in a given market, a monopolist is seldom entire insulated from the economy as a whole.
All commodities are rivals for the consumer s limited income.
The more near substitutes the greater the moderating influence on a monopolist. The threat of entry by outsiders interested in gaining some of the monopolist s excess profits can serve to moderate the pricing behavior of a monopolist, e.g. the threat that cable companies could offer telephone service will limit the actions of a telephone monopolist. The monopolist faces the same demand curve as the industry. As in perfect competition, the market demand curve is constructed from the horizontal summation of individual consumer demand curves and is usually negatively sloped, i.e. if price goes up, demand goes down. In monopoly, however, an increase in price will cause a decrease in the quantity supplied by the monopolist.