What is a Monopoly? A Simple Explanation for Kids, Teens and Beginners

What is a Monopoly? Finance 101: Easy Peasy Finance for Kids and Beginners

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Introduction to a Monopoly for Kids and Teens

This video explains the concept of a monopoly in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about monopolies, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

Suitable for students from grade levels:

• Kindergarten
• Elementary School
• Middle School
• High School

The topics covered are:

• What is a monopoly
• Key features of a monopoly
• How are monopolies formed
• Are monopolies good or bad
• Does the government take any action to stop monopolies

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What is a monopoly?

A monopoly occurs when a company dominates its sector, industry or geography, and has little or no competition.

A company with a monopoly has all the power to control prices, and has all the influence in the market because consumers don’t have any real alternatives.

For example, Google has a monopoly on the search engine market, because it controls over 90% of all searches.

What are some of the key features of a monopoly?

While all monopolies don’t show these traits, these are some signs of a monopoly:

1. Single seller or a huge market share

When there is only one seller for a product or service, or a single seller controls the majority of the market, they have a monopoly.

For example, Netflix used to enjoy a monopoly before other streaming services started.

2. Patents

When a company owns a patent that prevents other companies from manufacturing or selling that product, it limits competition. This is very common in the pharmaceutical industry.

3. Technological advantage

When a company uses superior technology and has a first-mover advantage, it enjoys a monopoly until the competition catches up.

An example is Tesla in the electric car market.

4. Economies of scale

Because of its large size, a company can get its supplies at a huge discount, allowing it to lower prices and drive out competition.

Two examples are Amazon and Walmart.

5. Market manipulation

The lack of competition allows a monopoly to raise prices without negative consequences and engage in price discrimination.

For example, movie theater convenience stands can charge exorbitant amounts for candy and popcorn as the patrons cannot bring in outside food.

How are monopolies formed?

Some monopolies, called natural monopolies, happen either due to a lack of competition, or because of a high entry barrier in that particular geography or industry – caused by patents, specialized technology, high startup costs, etc.

But monopolies can also be created over time, from two or more powerful companies merging, or from a government sanctioning a monopoly for essential goods and services. This is often the case with utilities, where one big player is responsible for supplying water or power within a region.

Are monopolies good or bad?

In most cases, monopolies are bad. Competition is the biggest driving factor for high quality products, innovation, and low prices.

But in a monopoly, there is pretty much no incentive for the company to improve its products or decrease its prices since there is very little or no competition. No matter what they do, customers will have to continue buying from them.

Does the government take any action to stop monopolies?

If a monopoly is formed by providing better products or by improving efficiencies, it is not just permitted, but even encouraged by governments.

But there are laws in place to prevent monopolies from indulging in unethical practices to wipe out competition, or taking advantage of their consumers.

In addition, the government can block mergers between large companies to stop a monopoly from forming, and can break up companies that are monopolies.

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Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

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Podcast: What is a Monopoly