A monopoly is the dominance of a specific market by a single business. Monopolies may result from a lack of competing companies in a given market or a limited number of companies that are strong competitors. These conditions can arise naturally but they are sometimes the result of aggressive, questionable and potentially illegal business practices including industrial espionage and backdoor selling.
Monopolies can exist in reality or in effect. The latter situation arises when conditions exist in which a single business controls a supply channel despite the existence of competition. Effective monopolies are often referenced in the context of purchasing and procurement and specific to a company.
An effective monopoly situation can arise for a buyer in a number of ways:
- Intellectual property ownership can prevent other suppliers from filling a need.
- Customers may specify sources as a part of requirements.
- The costs incurred switching suppliers could be prohibitive.
- There could be a lack of technically acceptable solutions among competitors.
- Company policies can create barriers to internal businesses or international suppliers.
When a single business holds a monopoly or other factors prevent free and open competition, market distortion results. Distorting the normal supply and demand model through monopoly can squeeze out new competition and inflate prices. Market distortion provides difficulty both for consumers and for private sector businesses following standard and ethical business processes.