|Book Edition||7th Edition|
If pure monopoly is a rarity, why do we study monopoly?
One of the reasons why pure monopoly is are is due to the availability of few goods or services for which there are no close substitutes and for which there is only one producer.
However, despite it being rare, pure monopoly is still studied since just like the perfect competition market, its analysis can be easily implemented than the other market structures which are considered to be more common, such as the oligopoly market structure and the monopolistic competitive market.
Also, it is easier to identify the negative effects of monopoly, when considering it in its purest form. These analyses allow implementation of policies, structures and interventions that would curb pure monopoly or policies that promote it to exist.
In addition, learning of pure monopoly structure, enables economists and analysts to understand operations of large dominating firms such as Google and Amazon even if they are not pure monopolies, using the pure monopoly model.
Because a pure monopolistic market is easier to analyze than the other market structures which are deemed more common for instance the monopolistic competitive markets which have many smaller firms whose products are slightly differentiated or the oligopoly which has fewer large producers. This is similar with the perfect competition which is mainly used for market analysis.
In addition, the use of pure monopoly for analysis, grants better understanding or clarity on why certain interventions and policies such as governments intervention to ensure there are no pure monopolies within the market.
Furthermore, we are able to learn the operations of firms that are close to monopolies such as Google and Amazon, through understanding the pure monopoly model.