Typically such a group can fix the price and terms for supply of a particular good or service.

The success of the free market models rely on parties having the choice of which buyer or seller (firm) they can deal with, and having those firms compete with each other.

In a market place where large numbers of suppliers and consumers are available, businesses will tend towards making a normal economic profit, for two reasons.

1. If the price is so high that a particular individual or company is making vast profits, they will be undercut by a competing supplier who wants to increase their sales.
2. If the firms in a particular field are generally making higher profits than those in other fields, other firms will tend to move into that field, and the extra supply will bring down prices and hence profits, to bring them into line with other fields. (Likewise if firms in a particular field are making a low profit compared with others, firms will tend to move out of the field and the reduced supply will raise prices, and hence profits, so they are brought into line with others).

In a monopoly this model breaks down. A single supplier can make large profits and ensure that most of the economic surplus (overall benefit from the trade) goes to the monopolist, and they make an above normal profit. This doesn't mean that others are made worse off from trading with them - no one is forced to trade with them, and the fact that they choose must mean that they are better off because of the trade. It just means that the market can be manipulated to sub-optimal (less overall utility), and so that the monopolistic firm can enjoy a greater share of the surplus of trade than in a competitive market.

Some 'pure' libertarians believe that no rules should be imposed to prevent monopolies - that in practice monopolies are not a problem, that a natural monopoly occurs because of economies of scale, and these are actually beneficial.

In practice there are few real monopolies. Nearly any good or service has a substitute. If a hamburger monopoly is set up, people can buy fried chicken. If an airport monopoly is set up, people can drive or take the train. Clearly there is a cost in doing so, but the capacity of the monopolist to 'charge whatever they like' is always limited.

An examination of the practices of OPEC would convince most that they do not work in the common interest. However nor are their actions totally destructive. They maximize profit by agreeing to limit supply (and therefore raise prices). Their actions ensure that the limited supply of world oil lasts longer, and the higher price results in the oil used in more efficiently.

The real problems with monopoly arise when they are backed up by force. Either force by the government, or through Mafia-like forces. Government can install monopolies though 'produce boards', or by passing anti-discrimination legislation such as making it illegal to discriminate on the basis of a membership of a union. Mafia forces can stamp out competition using predictable methods of force.

There are few monopolies which are not government monopolies, or maintained by government force.

Strictly speaking a monopoly is one seller in a market, a monopsony is one buyer in a market.

See

• Collective Bargaining