A monopoly is an extreme market structure with only one seller supplying a good or service, giving that firm substantial price‐setting power . In economic terms, a monopoly lies at the opposite end of the spectrum from perfect competition : unlike competitive markets with many small firms, a monopolist faces no direct rivals and can restrict output below the socially optimal level to raise prices. The basic market structures are:
- Perfect competition: Many firms with identical products, free entry, and no single firm can affect the market price .
- Monopolistic competition: Many firms with differentiated products (branding or features), giving each some limited pricing power .
- Oligopoly: A few large firms supply most of the market. They sell similar products and often follow each other’s pricing, so each has some power but must watch rivals .
- Monopoly: A single firm dominates an entire market or region, with high barriers preventing entry. It controls price and output; as one source notes, “In a monopoly … there is only one seller in the market… The single seller is able to control prices” .
By definition, a monopolist faces a downward-sloping demand curve and sets price above marginal cost, leading to allocative inefficiency (a deadweight loss) relative to competitive output . For example, one textbook explains that a profit-maximizing monopoly produces less output at higher price than a competitive market would, so consumers pay more and get fewer goods . (Perfectly competitive firms, by contrast, all produce where P = MC.) In practice, true monopolies are rare—governments often regulate or break them—but history and modern tech markets provide stark examples (below).
Historical and Modern Monopolies
- Figure: Early-20th-century political cartoon caricaturing Standard Oil as an octopus strangling competitors. One of the most infamous monopolies was Standard Oil under John D. Rockefeller (late 19th–early 20th century). Standard Oil combined dozens of refineries and pipelines into a “trust” that by 1882 controlled about 90% of U.S. oil refining . It achieved this dominance through horizontal consolidation (merging rival refineries) and vertical integration (owning pipelines, tank cars, and retail outlets) . Standard Oil’s market power let it fix prices and exclude rivals – until the Sherman Act (1890) led to a 1911 Supreme Court breakup into 37 companies .
- Bell System/AT&T (Telecom): In the 20th century, the Bell telephone network held a de facto monopoly on U.S. phone service . AT&T was both the sole local provider (via the regional “Baby Bells”) and owned Western Electric (equipment manufacturing) , giving it full vertical control. After a 1974 antitrust suit, AT&T divested in 1982, spurring a wave of telecom innovation .
- Microsoft (Software): By the 1990s, Microsoft Windows was on roughly 90% of the world’s personal computers, making Microsoft the near-monopoly in PC operating systems . It extended this dominance via tactics like bundling – e.g. giving away its Internet Explorer browser free with Windows, which helped crush competing browsers . In 1998 the U.S. Department of Justice filed a landmark antitrust case against Microsoft (U.S. v. Microsoft), arguing these strategies violated the Sherman Act . (Microsoft ultimately settled without being broken up, but lost some licensing practices.)
- Amazon (E-commerce/Cloud): Today Amazon is the dominant online retailer. In the U.S., Amazon’s share of total e-commerce sales is around 40% , far above any rival. Amazon’s scale and data-driven algorithms create powerful network effects (buying and selling on one platform) and allow tactics (predatory pricing on key products, strict seller contracts) that critics say “stifle competition” . The U.S. Federal Trade Commission sued Amazon in 2023, alleging it “illegally maintain[s] monopoly power” through exclusionary practices .
- Alphabet/Google (Internet Search/Ads): Google handles roughly 90% of global search queries , effectively making it the monopoly search engine. Its Android mobile system (combined with data and ad platforms) similarly dominates mobile. Google’s scale engenders massive network effects – the more users it has, the better its search results and ad targeting become – and its acquisitions (e.g. YouTube, DoubleClick) have consolidated online advertising. Regulators in both the U.S. and EU have challenged Google’s tactics (e.g. tying its search to Android) as anticompetitive under dominant-firm abuse rules .
| Company | Industry | Market Power (circa) | Strategies for Dominance |
| Standard Oil | Oil refining | ~90% of U.S. refining (late 1800s) | Horizontal integration (merged rivals) ; vertical integration (owned pipelines, distribution) |
| AT&T (Bell) | Telecommunications | Sole phone provider in U.S. (until 1982) | Vertical integration (Bell Labs/equipment) ; exclusive control of local telephone network |
| Microsoft | PC software/OS | ~90% of PC OS market (1990s) | Platform bundling (Windows+IE) ; network effects (developer ecosystem); acquisitions (LinkedIn, etc.) |
| Amazon | E-commerce/Cloud | ~40% of U.S. e-commerce (2024) | Network effects (marketplace, Prime ecosystem); vertical integration (own warehousing/logistics); aggressive pricing |
| Google (Alphabet) | Internet search/ads | ~90% of global search (2025) | Network effects (search/data feedback); ecosystem lock-in (Android, Chrome); acquisitions (YouTube) |
Strategies to Establish Monopolies
- Network Effects: Many digital monopolies rely on the fact that a product becomes more valuable as more people use it. This “network effect” means early dominance snowballs into entrenched power. As Investopedia explains, the network effect makes the value of a service grow with its user base . Social media, search engines, and online marketplaces all exhibit this. Once a platform reaches critical mass, competitors struggle to catch up (the classic example is Bell’s justification that “the telephone enjoyed monopoly” value from connecting everyone ).
- Vertical and Horizontal Integration: Firms often create barriers by controlling suppliers, distribution, or complementary businesses. Vertical integration (e.g. owning supply chain or distribution) lets a firm “control production from beginning to end,” raising entry barriers . Standard Oil famously combined refining with pipelines and shipping to lock out rivals . Horizontal integration (merging/acquiring competitors) directly consolidates market share. Google acquired rivals like DoubleClick and YouTube; Facebook bought Instagram and WhatsApp to neutralize competition. Such acquisitions – sometimes called “killer acquisitions” – are now routine . Pre-emptive buying of emerging rivals (before regulators intervene) is a noted strategy of big tech .
- Exclusive Dealing and Bundling: Monopolists often tie or bundle products to leverage their power. For example, Microsoft’s bundling of Internet Explorer with Windows (and making it hard to uninstall) was a key tactic that raised antitrust concerns . Similarly, Amazon ties Prime benefits (fast shipping) to use of its own logistics services, making it hard for sellers to use other channels. Such exclusivity deals can lock consumers and business partners into the monopolist’s ecosystem.
- Predatory Pricing: A firm may temporarily cut prices (even selling below cost) to drive out competitors, then raise prices later. This predatory pricing is illegal under antitrust laws, but has been a strategy in practice. Economists define it as setting prices “unrealistically low to eliminate competition” . Amazon has been accused of pricing key items at a loss to undercut rivals . While hard to prove legally, this tactic can further entrench a dominant firm if rivals cannot sustain losses.
- Patents and Legal Barriers: Firms can secure legal monopolies via intellectual property or regulation. Patents grant time-limited monopoly rights (e.g. Polaroid’s 20-year patent on instant film) . A patent-based monopoly lets the holder set prices without competition on that innovation . Similarly, government-granted exclusive rights (e.g. public utility franchises) create natural or legal monopolies. After all, many U.S. natural gas/electric utilities remain local regulated monopolies because duplication is inefficient .
Antitrust Law and Regulation
Modern economies prohibit or regulate monopolistic behavior through antitrust (competition) laws. In the United States, the Sherman Antitrust Act (1890) makes it illegal to “monopolize, or attempt to monopolize” trade . Section 1 of Sherman also outlaws cartels and collusion (e.g. price-fixing), while Section 2 forbids unilateral monopolizing. The Clayton Act (1914) and FTC Act (1914) supplemented Sherman by banning certain exclusionary practices and by establishing the Federal Trade Commission to enforce competition law. U.S. authorities have invoked these laws to break up or curb firms like Standard Oil, AT&T, and Microsoft . For instance, Standard Oil was divided under Sherman, and DOJ famously sued Microsoft in 1998.
In the European Union, competition law is embodied in the Treaty on the Functioning of the EU. Article 102 TFEU prohibits any “abuse” by a firm of a dominant market position . (Market dominance alone is not illegal; abuse – e.g. unfair pricing, tying, refusing to deal – is.) The European Commission has used this rule to sanction Microsoft, Google, Apple and others for bundling or exclusionary practices. Commission rulings have fined Google for privileging its own services and fined Amazon and Apple on data/competition grounds.
Globally, many countries have similar laws. China’s Anti-Monopoly Law (enacted 2007, effective 2008) is its chief competition statute . It outlaws monopolistic agreements and abuse of dominance, and has been used to fine large tech firms. The UK’s Competition Act (1998) mirrors EU rules, and regulators like the CMA in Britain or the Competition Bureau in Canada pursue big-firm misconduct. In recent years, new enforcement has intensified worldwide – e.g. U.S./EU probes of Amazon and Google, China’s investigations of Alibaba and Tencent – reflecting concern over the rising market power of tech giants.
“Monopoly or Nothing” – The Silicon Valley Mindset
Some business thinkers unabashedly embrace monopoly as the goal. Peter Thiel (co-founder of PayPal) popularized the contrarian view that “competition is for losers” and that startups should aim to create monopolies. In Zero to One, Thiel argues that only a monopoly can earn “monopoly profits” needed to transcend the “daily brute struggle for survival” . He notes that monopolists (like Google) have the luxury to plan long-term, care about product development and even ethics, whereas firms in brutal competition focus only on today’s margins . As Thiel puts it, “Monopolists can afford to think about things other than making money; non-monopolists can’t” . He acknowledges that monopolies draw consumer criticism – “profits come out of customers’ wallets” – but sees those profits as funding dynamic innovation in a changing world . In essence, the “monopoly or nothing” creed holds that being the last firm standing with a unique product is far superior to fighting commoditized competition.
Criticisms and Ethical Concerns
Despite strategic appeal, monopolies raise serious ethical and economic objections. By cutting competition, a monopoly harms consumers: it sells less at a higher price than in competitive markets , reducing consumer surplus and creating deadweight loss. Nobel laureate John Hicks quipped that “the best of all monopoly profits is a quiet life” , warning that sheltered monopolists may lack incentive to innovate or please customers. Indeed, U.S. telecom (AT&T) offered few choices (any telephone “you want as long as it’s black”) until regulation ended its monopoly .
Social critics also lament the broader impacts. Rising market power contributes to inequality and exploitation. Paul Krugman observes that higher markups in concentrated industries effectively transfer income from consumers (and workers) to owners of monopolies . Monopolists frequently engage in sophisticated price discrimination or tie consumers into paid services, siphoning off welfare for shareholder profit . The Roosevelt Institute notes that in the digital age, firms with market power have new tools to “extract consumer surplus” and exploit information asymmetries . Critics argue this entrenched corporate power can stifle new entrants, skew innovation toward the interests of a few, and even warp politics (through lobbying or regulatory capture) – outcomes at odds with ideals of fair competition.
In sum, while monopolies can drive scale and, at times, innovation, they also tend to reduce consumer choice, inflate prices, and accumulate economic and political power. These trade-offs keep monopolies at the center of heated debate among economists, ethicists and policymakers – a debate reflected in the antitrust laws and in the contrasting views of thinkers from Adam Smith to Peter Thiel.
Sources: Authoritative economics texts and journalistic analyses , among others. (Citations in text.)











