Competition is an essential attribute in the market, with varying degrees of competition leading to different market structures and outcomes. Monopolies mark one extreme of market structures, existing ‘when a specific individual or enterprise has significant control over a particular product to determine significantly the terms on which other individuals should have access to it’ (Friedman 1962, p. 120). Despite this generalized statement, there is no clear-cut definition of what comprises a monopoly, with various types and degrees, some more socially desirable than others. Depending on the extent of monopoly, the market structure can pose problems to markets through barriers to potential competitors. In theoretical economic terms, this allows monopolies to extract consumer surplus and social welfare through imposing inefficiencies, leading to social disadvantages for consumers. However, theory can be misleading and certain monopolies can provide advantages to markets by contributing to social welfare. To capture these advantages, it is argued that different types of monopoly should be complemented by appropriate government regulation to ensure they do not abuse their market power. However, this is dependent on the characteristics of the monopoly and type of regulation, as shown in the case of natural monopolies. Therefore, depending on the degree of monopoly, appropriate regulation can help realize monopolies’ potential to contribute to social welfare and minimize the problems they present.

To determine whether monopolies pose a problem to the market, it is vital to understand the wide range of definitions and types underlying the market structure. According to Friedman (1962, p. 121), it is ‘difficult to cite a satisfactory measure of the extent of monopoly and competition, as these concepts as used in economy theory are ideal constructs to analyse particular problems rather than describe existing situations’, leading to various definitions of monopolistic markets. If there are no close substitutes for a product and only one seller in the market, then the market structure is that of a ‘pure monopoly’. In reality, it is difficult to find a market in which similar products do not exist, with The Fair Trading Act (1973, in OECD 2002, p. 20) stating a ‘scale’ monopolistic market is where a firm does not face any significant competitive forces and possesses at least 25 per cent of the market. The characteristics of a monopolistic market also depend on how it sourced market power. Friedman (1962, p. 129) believes that direct and indirect government assistance is the most important source of monopoly through its affect on the entry of potential competitors. To ensure consistent production and delivery, markets such as public utilities that are essential and cannot tolerate disruptions from free market forces are often directly granted government regulations, creating natural monopolies (Amadeo 2018). Private monopolies are also constantly, often through vertical integration to control the entire supply chain or buying up competitors to achieve horizontal integration (Amadeo 2018). A common factor behind these monopolies is the use of barriers to the market, creating problems by limiting competition.