Definition of Monopoly, Features, Causes, and Examples in Indonesia

Definition of monopoly – Actually, monopoly is very attached and close to everyday life, Reader! Has Reader ever found a business or product, where the product and business are owned by only one company?

More or less, that’s an example of a monopoly. Then, what is the true meaning of monopoly and what are the effects and examples of monopoly in Indonesia? Check out the following explanation, yes!

Definition of Monopoly

The word monopoly itself, comes from Greek which comes from kaya monos ie own and polein which means seller.

From the root of the word monopoly, the term monopoly can be defined as a condition where there is only one seller who supplies or offers certain goods or services.

The term monopoly can also be interpreted as a situation where a business is dominated by only one company or market and the company or market has no competitors.

In general, products and services that come from monopoly companies are products that are one of the needs that are much needed by society in general.

According to Kamus Besar Bahasa Indonesia (KBBI), the concept of monopoly is defined as the procurement of certain merchandise either in the local or national market and at least a third of the market is controlled by one person or one group. So, the price of goods can be controlled.

Monopoly can also be interpreted as a business situation that is fully held by only one company.

This can happen because only those companies have services that are needed by many people. So, making the company has no other competitors.

By practicing monopoly, the company can take maximum profit.

The monopoly market itself is one of the forms of interaction between demand and supply that is characterized by only one producer or single producer facing many consumers or many buyers.

According to Law Number 5 of 1999 on the Prohibition of Monopoly Practices and Unhealthy Business Competition, this monopoly activity is the control over the production and or marketing of goods or over the use of certain services by only one group of business actors and has no other competitors.

So it can be concluded, that the company that does this monopolistic act can obtain maximum profit at the same time and enable the company to become a market operator as well as a price operator.

In monopoly activities, there is a monopoly market. Monopoly market is a form where there is a single seller who dominates the market, the seller has the power to determine the price and does not have similar goods.

In the monopoly market, there are no other similar goods and there are no competitors. A seller in a monopoly market is called a monopolist. As monopolists, they have the power to set prices.

Because of their power, the monopolist is also called a price setter or price maker. A monopolist can reduce and increase prices by determining the amount of goods that will be produced by the company.

The fewer goods produced by the company, the more expensive the price of the goods and vice versa.

Despite that, the seller also has limitations in determining the price. If the pricing is too expensive, then people will delay purchasing the product.

Consumers will also try to find or make substitute goods or substitutes for the product or even, consumers will look for goods in the black market because they are looking for goods that are available and at a cheap price.

The terms monopoly, monopolistic and monopsony are terms that have different definitions. Although the three terms may sound the same to Reader’ ears. So, what is the difference?

As explained earlier, monopoly means that there is one seller present in the market. So monopsony means that there is only one buyer in one market.

While the term monopolistic, is a condition where there are several companies that offer similar services, but the services are not exactly the same.

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This happens because of differences in the field of technology, field and so on.

Well, up to now Reader has understood not the meaning of monopoly, monopoly market even to some terms that sound the same as the word monopoly?
In order to better understand, Reader needs to know the causes of the following monopoly.

Causes of Monopoly Actions

Why can monopoly actions occur? There are several reasons why this monopolistic action can happen to the point of causing unhealthy competition between companies or traders. Here is the explanation.

1. Monopoly by Nature

The first cause of monopoly is natural. Like when there is a company that is located close to the resources used.

So the geographical location and climate of the location will also support the company to be the only company that provides its products and services.

2. Monopoly by Law

The second cause is due to regulations or laws that apply in a country. It is intended to make a product or service related to the needs of the community, so that the price can be controlled by the government.

3. Monopoly by license

The third reason for the existence of monopoly activities is because a company has patent rights on the intellectual property owned by the company, for example such as Microsoft and Google.

Characteristics of Monopoly

From the understanding above, there are some general characteristics or features to identify monopoly companies. Here is the explanation.

1. There is only one supplier or one company

This first feature, of course, is the most easily identified feature of a monopoly. When a company has a monopoly, then the company will be the only supplier of goods or products needed by the community.

That is, the company controls the resources completely, so that only the company is able to make the product or item.

2. No Replacement or Substitution Goods

Because there is no other supplier or company, then the consumer does not have any alternative goods, when an item is empty. So, there is no substitute or substitution item that can be chosen by the consumer.

3. Price Maker

As has been explained before, that companies that carry out monopoly activities get large profits from the results of the authority they have, that is, they can freely determine the price of a product and determine the price freely, so the third characteristic of a monopoly is the price maker.

4. Prospective newcomers, will have difficulty entering the market

The fourth feature of monopoly, is that new entrants who will enter the market will encounter many obstacles.

This is due to the three characteristics of the previous monopoly, namely that the company can freely determine the price of its own products and the consumer has become accustomed to not having a choice, except to buy the product or service sold by the company.

5. Have a Small Advertising Budget

Monopoly companies generally have a relatively small marketing and advertising budget.

6. Causing Injustice

Monopoly practices that occur can cause injustice and loss for the community.

Monopolies in Indonesia and Examples

Because this monopoly activity can cause losses, the Indonesian government also applies special policies so that the practice of monopoly activities is not carried out arbitrarily by irresponsible parties.

In Indonesia, the agency that has the authority to oversee the practice of monopolistic activities is called the Business Competition Supervision Commission or KPPU.

Where this KPPU has a task that has been regulated in Law Number 5 of 1999, about the realization of a more efficient national economy and welfare of its people.

The KPPU itself has a mission which is the prosecution and prevention of the internalization of business competition values ​​as well as institutional strengthening.

There are several examples of monopoly companies in Indonesia. Some of them are Pertamina, PLN and PDAM, where the three companies are the main and only suppliers of fuel, electricity and clean water for the needs of the community.

The three companies in Indonesia are companies that have a monopoly because of the law. So, the government has the authority to determine the price of the three products.

Apart from Indonesia, of course this monopoly market also happens abroad. Examples of foreign companies that have monopolies are Google, Microsoft and Facebook.

The three companies have competitors, but those competitors generally do not have the same strength as the three companies and find it difficult to compete.

The three companies have a monopoly, because they have patent rights. So that only those three companies are able to produce services or products needed by consumers.

As has been explained above, that monopolies can bring losses for the people as well as profits for the companies that do the monopolies.

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Until then, the anti-monopoly movement emerged as well as other policies that discuss monopoly, including monopoly policy in Indonesia.

Regarding this matter, Asril Sitompul, the author of the book ” Monopoly Practices and Unhealthy Business Competition ” explained that the legal regulations regarding monopoly in Indonesia are still quite new and about business competition and anti-monopoly which is interesting to read. If interested in reading this book, Reader can buy it by clicking on the following book.

Advantages and Disadvantages of Monopoly Markets

After learning the characteristics and examples of monopolies in Indonesia, Reader certainly knew that monopolies bring a lot of losses for some parties, but also bring good fortune for others.

Here are the advantages and disadvantages of a monopoly market.

A. Disadvantages of Monopoly Markets

1. Harming Consumers

As explained in the definition of monopoly, due to the practice of monopoly, consumers do not have other product alternatives other than the products and services that have been provided by the company that performs the monopoly.

As a result, consumers feel reluctant to buy these products and services, because the prices charged by companies sometimes rise to the point where they are considered unreasonable by consumers.

However, because the company has a monopoly, the company does not feel afraid of losing customers, and the company can provide less than optimal service to the extent that it causes the customer to lose.

2. Triggering the Presence of the Black Market

The monopoly market has a second disadvantage, which is that it can trigger the emergence of a black market. Where the black market, will sell products similar to monopoly companies, but sold or obtained illegally.

The black market makes consumers, get products and services at more affordable prices when compared to the monopoly market, so it is not rare that consumers prefer to buy their necessities in the black market.

3. Requires a Big Cost

The last disadvantage caused by monopoly is that it requires large costs. A company that wants to monopolize, then it must have a large enough cost, so that the company continues to be able to monopolize the market by using the latest technologies in accordance with the development of the times.

B. Advantages of Monopoly Markets

In addition to the shortcomings caused by the monopoly market, apparently the monopoly market still brings profit for some parties, especially to the perpetrators of the monopoly activities.

Here are some advantages of a monopoly market.

1. Low Level of Competition

Companies that are in the monopoly market, have a fairly low level of competition.

2. Freely Install Price Tariffs

As the only supplier, the company will not be afraid of losing customers even if it gives a high price that is considered unreasonable.

3. Continuous Innovation

Companies involved in monopoly activities will continue to improve innovation and creativity, so that consumers feel satisfied and loyal to the company.

4. Efficiency of the Company’s Operational Activities

Because it does not have competitors, even companies that have a monopoly can run their operations more efficiently, in addition to that, companies will also be more free to develop ideas and innovations that are needed without interference from other competitors.

Why Are Companies Able To Do Monopolies?

There are several reasons that make a company able to monopolize, among them are the following.

  1. The company has mastered the raw materials needed by many consumers and has become one of the staples that people always look for.
  2. Monopoly companies have production techniques and production methods that are not owned by other companies or groups. So that it is easy for the company to process and utilize production techniques well in order to produce a specific product.
  3. Companies have special rights granted by the government, for example such as patent rights on certain inventions and licenses. An example is patent rights owned by Facebook or Microsoft.
  4. Companies that will do monopoly, have a large capital cost. For example, such as a combination of several companies, or drug companies that buy other companies or consolidate with other companies to be able to dominate the market.
  5. Companies that are involved in the monopoly market, generally have certain unique performance and skills and these skills are not owned by other companies. An example is business done by startup companies , startup companies generally have advanced technology, such as artificial intelligence that other companies do not have.
  6. Companies involved in the monopoly market are generally companies that have been standing for a long time and are too large. So that the company dominates upstream to downstream and forms an ecosystem that is difficult for new players to enter.
  7. Companies can monopolize, due to market limitations as well as the natural nature of the industry.

That is the explanation of the meaning of monopoly , the causes of its occurrence, characteristics, and examples.: