[meric]

If the monopoly is in an industry where the barrier of entry is very high, then yes, they could raise prices to antisocial levels and make exorbitant profits; However if the monopoly was in an industry where the barrier of entry is very low, the monopoly doesn't have that much power to raise prices to antisocial levels; If they do other competitors will jump in. Imagine, through low prices and effective logistics you've achieved a monopoly in producing wheat. You have a monopoly because no one can afford to sell as low as you do, not even the poor developing country farmer; Now imagine that you got arrogant and raised your prices by 350%, you'd start to lose the monopoly because other competitors can now enter the market. That's why you wouldn't raise prices even if you have a monopoly, if your industry has a low barrier of entry. No matter what you cannot employ defensive tactics to ensure your competitors (other farmers) can never gain traction, if your prices are too high.

Now, whether search or social networks are high barrier of entry industries, is another question. (I tend to think so)

[JanezStupar]

Is monopoly even possible in easy to enter markets? Could you please present an example?

[meric]

Let's say in a town of 200 people you open the first fruit shop. Turns out people there love fruits but just never knew it. Everyday they only come to your shop to buy fruits. That's a monopoly already. However, you'd only stay a monopoly if your prices stay competitive. If your prices are too expensive and your margins are too high, other opportunists will jump in to open their own fruit shop, and there's nothing you can do to stop them. You can try to drop your prices, but that's it, and now you're worse off, your prices are lower and there's a competitor. You'd rather have prices to be low all the time and have all the business to yourself.

[JanezStupar]

I think that your example does get a point across, however there are a couple of problems with it:

1. I was hoping for a real world example (if its possible then there should be many examples, right?). 2. You imply that the fruit shop owner has access to the most efficient supply chain of all the other potential, would be fruit merchants and thus the only way he can loose his primate is if he raises the prices too much. How about people who start competing for various reasons like: I don't like the guy, or I don't have a better idea for business, etc. 3. Defining monopoly too locally has its own problems: Grocery store has a monopoly over selling groceries on a block, if there are two groceries, we can say that each has a monopoly over their part of the block, etc. See that's not really a monopoly.

The point is that in free, easy to enter markets monopolies are impossible - by the virtue of free and easy to enter market. What monopoly really is - domination of a single entity over a regulated (possibly by the monopoly itself) and expensive to enter market. Examples: http://en.wikipedia.org/wiki/Monopoly#Examples_of_legal_.28a...

See no village fruit merchants there.

[meric]

By your definition, Amazon is not really a monopoly either, its got to compete with all these brick and mortar book stores...

My definition: a firm is a monopoly in a market when it is the only firm trading in that market.

The grocery shops on two blocks: not really, their markets overlap.

To look for real examples, pick any country town with 1 petrol station, or 1 book store, or 1 supermarket, or 1 fruit shop. You're never going to get these mentioned in a Notable Monopolies list on wikipedia.

[JanezStupar]

:)

Amazon is waaaay from monopoly. It competes with eBay, specialty web stores,...

And also - entering the field of WEB commerce is not a hard to get into market per say. Getting into oil market or telco marker, even getting Wal-Mart out of the way - now these are some hard undertakings.

In a town with 1 fruit shop - you can always go to nearby town if you don't like your fruit merchant (out of spite for example). But when you arrive to these nearby towns - and everywhere there is basically the same fruit retailer, with the same problem that bothered you with the first one. That's when you encountered a true monopoly.

I'm from ex-socialist republic and mostly everything was monopolized (many things still are) by the government or government owned enterprises. If you're from US, you wouldn't have seen stuff like that since AFAIK you guys are really good at breaking stuff like that apart.

So while I admit that your reasoning is solid, I view the term "monopoly" as inherently bad, since lets face it most (even all?) businesses start squeezing their customers when they get the chance.

[meric]

Seriously, drive 100km to the next town to buy fruit when you have a reasonably priced fruit shop next door? :)

I'm from Australia, similar i suppose. Monopolies are generally bad, but as I said before, monopolies that result because a firm is super efficient and keeps prices low, and remains that way because it is afraid of potential competitors, well that monopoly is hard-earned. Although these so called monopolies are generally small. (being the only firm in a niche market).