# monopoly-price

## Definition

Monopoly price is the highest price that can be obtained for a commodity when its supply is restricted by a monopolist who keeps the market constantly understocked by never fully supplying the effectual demand. This price exceeds the natural price and allows the monopolist to raise their emoluments (whether wages or profits) greatly above their natural rate. Monopoly price represents the maximum that buyers can be squeezed to pay.

## Source Chapter

Book 1, Chapter 7: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."

## Context

Smith identifies monopoly as one of the causes that can keep market prices permanently above natural prices. He contrasts monopoly price with natural price (free competition) and explains how monopolists maintain their advantage by restricting supply to maintain high prices and profits.

## Economic Domain

Regulation

## Smith's Original Wording

"The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which it is supposed they will consent to give; the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business."

## Modern Interpretation

Monopoly price represents the allocative inefficiency created by market power, where prices exceed marginal cost and output is restricted below competitive levels. This concept forms the basis for modern antitrust theory and welfare economics analysis of monopoly distortions.