‘Monopoly’ means the exclusive possession or control over a thing or commodity or trade in a particular industry or sector. Companies composed of monopoly stocks are said to be having monopolistic control over a particular sector. So, basically it dominates a particular industry with a low or absolutely no competitors leading to a giant company exercising its rights in a state.
We shall discuss the meaning, types, & illustrations below.
Monopoly in the stock market means there is “no competition” over a supply of goods and one particular person or a company gets extraordinary profits by authorizing their products. Whether it’s good or bad depends upon the personality and expenditure of the buyers of a country.
There are so many monopolistic stocks prevailing in India, for example, IRCTC is the only authority that runs the railway services in India. If another competitor or private industry, there can be less monopoly in the hand of IRCTC & more inclusivity.
Generally, monopoly is classified under 7 categories:-
A simple monopoly denotes the condition where the supply of one good is not followed by any other good or it is the sole of its kind in the market. It usually maintains a consistent price.
Pure monopoly is classified as the monopoly where there is a singular or only one company providing a service or giving such products that are regularly not aligned to any other products in the market. Therefore, it’s usually more profitable as buyers would buy the same company product no matter what the price is.
3. Natural Monopoly
Natural monopoly derives from natural situation. The more unique in quality, nature & price the goods is, the more naturalistic the monopoly is.
4. Legal Monopoly
Legal monopoly refers to trademark, patent, hallmark or other copyrights, by which a company derives its monopolistic right by not letting other use that idea or similar products.
5. Public Monopoly
When government establishes monopoly in the production of any particular good, it is regarded as public or government monopoly. Government can also rename or take over an industry to gain monopolistic rights.
6. Discriminating Monopoly
When a monopolistic good decides to configure its price & quality differently for different places, it can be a discriminating monopoly. Like the price of a good can be different in different pin codes.
7. Imperfect Monopoly
In an imperfect monopoly, there is a close substitute for any market good. So, it has lower gravity than that of pure goods, as the public has any other option when the goods are not available in the market.
Some examples of the best monopoly markets in India are given below.
The IRCTC (Indian Railway Catering and Tourism Corporation) under the Ministry of Railway of Government of India is a monopolistic body also being a public sector enterprise. It is a Mini Ratna (Category-I) of the Central Public Sector Enterprise. IRCTC was established initially as an extension of the Indian Railways.
2. Coal India
Coal India Ltd. is the pioneer mining and production industry of coal, managing the operations of coal washeries. Contributing a total 82% in total coal production of the country, signaling its monopoly.
3. Hindustan Aeronautics India
Founded in 1940, Hindustan Aeronautics India Ltd. is a company, which is monopolistic in manufacturing, designing & constructing airplanes, jet engines or helicopters for a long time. It is an inherent name with the military aviation industry of India.
4. Nestle India
Though Nestle has various industries in its bucket, it’s still known for its milk substitution or cereal products. It has established itself as a pioneer brand in the instant food industry.
ITC is a conglomerate company with global chain supply and distribution network. The cigarette-to-hotel conglomerate company now reached seventh in market cap.
At first value, investing in monopolistic stocks is equally profitable for primary investors and secondary investors. One need to evaluate the size & growth, and business model of a company before investing in any such monopolistic stock. Before considering investing, it is also viable to consider the market condition and expertise of professional in the particular sector.