Monopoly — Types of Markets: Competition & Monopoly | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 4% of your exam marks.

new

Rare

New4%

New emphasis in the 2027 syllabus; the characteristics, advantages and disadvantages of competitive and monopoly markets are examined directly (diagrams are not required). Guidance based on specimen materials.

A monopoly is a market supplied by a single firm (or, more loosely, one firm with a dominant share). With no close competitor, the firm has the power to set its own price rather than accept a market price. Such a firm is sometimes called a price maker.

A monopoly often arises from that keep rivals out: control of an essential resource, very large set-up costs, patents, or legal protection.

Effect of one firm on price, quality, choice and profit

Feature	Effect under monopoly
Price	Higher — with no competitor to undercut it, the firm can restrict supply and raise the price above the competitive level.
Quality	— with no competitive pressure, the firm has less incentive to improve. (It may also be high if the firm reinvests its profits.)

Exam tip

Explain how a monopoly affects consumers

What comes up: a 4-mark "Explain two ways in which a monopoly may affect consumers," or an analyse question on the effect of one firm dominating a market.

Write (identify + explain, twice): for example, (1) higher prices (1) because the single firm can restrict supply and faces no rival to undercut it (1); (2) less choice / lower quality (1) because there is no competitive pressure to vary or improve the product (1). Other creditable effects: large profit for the firm, or possibly lower prices if economies of scale are passed on.

Watch out: the question asks for the effect of having only one firm — keep each point linked to the absence of competition. A balanced answer can note that economies of scale might let a monopoly charge less, not more, in some cases.

Higher prices and restricted supply. To maximise profit, the monopolist produces less and charges more than a competitive market would, so consumers are worse off and resources are misallocated.
Less choice for consumers, who cannot switch to a rival.
Weaker incentive to improve quality or cut costs, because no competitor threatens the firm's sales.
Possible exploitation. The firm's market power can be used against the interests of consumers and, sometimes, of its suppliers.

Economies of scale. A single large firm produces on a very large scale, so its average costs may be lower than those of many small firms — and some of that saving may be passed on as lower prices.
Funds for research and innovation. High profits give the monopolist the money to invest in research, new technology and product development.
Avoiding wasteful duplication. One firm avoids the duplicated networks and advertising of many competing firms — useful for a natural monopoly such as a water or rail network, where having one supplier of the infrastructure is the most efficient arrangement.

Types of Markets: Competition & Monopoly

Exam Frequency Analysis

Effect of one firm on price, quality, choice and profit

Disadvantages of monopoly

Advantages of monopoly