causes of monopoly

How does a firm establish a monopoly position in a market? The fastest route for a business to grow and take an increasing share of a particular market is through integration i.e. through agreed mergers or contested take-overs.

Horizontal integration occurs when two businesses in same industry at the same stage of production become one.

Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain - for example an oil company owning drilling and extraction businesses together with refining, distribution and retail subsidiaries.

Monopoly power also comes from the ownership of Patents and Copyright protection or the exclusive ownership of assets (e.g. De Beers - diamonds).

The government may also give legal monopoly power to some business through nationalisation or government awarded franchises and licences.

Monopoly power for existing firms within a business can come more organically through the internal growth of a firm, taking advantage for example of internal economies of scale.