Hi there! I'm Shrijith Venkatrama, the founder of Hexmos. Right now, I’m building LiveAPI, a super-convenient tool that makes engineering life easier by creating gorgeous API docs from your code in minutes.

While I work on LiveAPI, I’ve been diving into economic ideas and sharing what I learn. Today, let’s explore natural and market prices, monopolies, and what drives pricing in markets.

How Do Monopolies Happen?

Monopolies can emerge in several ways, often depending on who controls what:

1. Trade & Manufacturing Secrets
   
   A company that holds proprietary knowledge—like a special formula or production process—has a leg up on everyone else. Think about Coca-Cola or a patented tech breakthrough.

2. Control of Natural Resources
   
   Some monopolies happen because a company owns rare resources, like diamond mines or strategic minerals.

3. Government-Backed Monopolies
   
   Governments sometimes support monopolies directly, either by granting exclusive rights or heavily regulating competitors.

Microsoft: A Modern Monopoly Case Study

Microsoft offers a clear example of how monopolistic traits work:

• Proprietary tech: Their software was hard for competitors to replicate.
• Superior distribution: Microsoft’s products reached far and wide.
• Large user base: Their scale let them lower prices while staying profitable.
• Lock-ins: Switching away from Windows or Office? Painful for users.
• Bundling: Packaging multiple products together left competitors scrambling.

These strategies helped Microsoft push prices further from “natural” costs, earning them high profits.

Natural vs. Market Price: What’s the Difference?

This is a cornerstone of economics, so let’s break it down:

1. Natural Price
   
   This is the baseline. It’s the cost of producing something, covering wages, rent, and a basic profit. It's the minimum price needed to keep the business going—not a penny more.

2. Market Price
   
   The market price is what people are actually willing to pay. For monopolies, this can be way higher than the natural price.

How Competition Brings Prices Back to Earth

Adam Smith had this figured out ages ago—competition is key. When new players enter a market, prices tend to drift back toward their natural levels.

But monopolies fight this. They limit supply or control demand to keep prices high.

Supply, Demand, and Market Pricing

Prices are a dance between supply and demand:

• Too much supply + low demand = prices drop.
• Too little supply + high demand = prices shoot up.

Some industries, like agriculture, depend on unpredictable factors like weather, which can mess with supply. In contrast, manufactured goods often have steady output, which keeps pricing more stable.

Monopolies, however, love tinkering with supply to keep prices high.

Who’s Who in the Economic Game

Let’s round things out by looking at the key players in this story:

• Landlords: They collect rent for land use, affecting supply decisions.
• Laborers: They earn wages and decide where to work based on pay.
• Merchants/Employers: They use labor and capital to create goods and earn profit.
• Demanders: People willing to pay the natural price for goods.
• The Poor: Represent those who want but can’t afford certain goods.
• Competitors: Businesses that keep each other in check.
• Monopolists: Those controlling supply and pushing prices up.

Wrapping Up

At its heart, economics is about balance: supply and demand, competition and monopolies, natural and market prices. While monopolies disrupt this balance, competition strives to restore it.

Understanding these forces helps us see why pricing matters—not just to economists, but to anyone who buys, sells, or creates.

Thanks for exploring this with me! What do you think? Any new insights or questions?