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Why is the monopoly firm a price maker?

Since a monopoly is a company that has a good or service that no other company offers, monopolies are price makers by definition. A price maker is a business that can essentially set its own prices without considering how its competitors are pricing goods because the business does not really have any competitors in a particular market. For a firm to be a price maker, the good or service it is selling must not have a perfect substitute.


For example, a pizza restaurant is unlikely to be a price maker because most cities have more than one pizza restaurant, meaning those pizza restaurants must compete with one another for customers. As a result, they will work to lower their prices and/ or improve their products to attract customers, who tell the pizza restaurants what their preferences are based on which restaurant they choose to visit.


A modern-day company with a monopoly is Monsanto, which sells genetically modified seeds. Monsanto is very particular about making sure no one else sells genetically modified seeds that have the same formula as theirs. This monopoly on genetically modified seeds is a very profitable enterprise in the United States; Monsanto is a Fortune 500 company that does billions of dollars of business every year.

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