Monopoly-microeconomic?

Question

What roles do substitutes play in the definition of monopoly? If there is only one seller in the market, but the firm’s product has many good substitutes, is the firm a monopoly? Explain.

Answer 1

That's a semantic distinction, but not a real one. If there are substitutes for the product, the company cannot behave like a monopoly. Example: Your local telco may be the only company that can bring traditional telecom service to your home, but there are several other ways you can get telecomm service -- from your cable provider. wireless providers like Clearwire, etc. Your local telco may be a monopoly in precisely what it porvides, but if it were to behave like it had a monopoly, it would price itself out of business.