At the opposite end from perfect competition sits monopoly: a single seller, no close substitute, and (the economically load-bearing assumption) a genuine barrier to entry that keeps it that way. Note the vocabulary bridge worth stating exactly once: a "barrier to entry" in this discipline is the identical concept the page on Greenwald's competitive advantage calls a true barrier under Greenwald's asymmetry test (something that lets the incumbent do what an equally well-funded entrant cannot do at equal cost) as opposed to a mere cost of playing that any entrant can also pay. This module does not re-derive that test; it simply notes that wherever it holds, the monopoly machinery below applies.
How does a monopolist set its price?
A monopolist faces the entire market demand curve directly (there is no one else to sell to), so unlike a price taker its marginal revenue is not the price, selling one more unit requires cutting price on all units sold, not just the marginal one, so MR lies strictly below the demand curve at every quantity (for a linear inverse demand P = A − BQ, MR = A − 2BQ: the same intercept, twice the slope). The universal profit-maximizing rule from perfect competition still applies unchanged (MR = MC) but because MR < P for a monopolist, the resulting price sits above marginal cost, and that markup is the entire economic content of "pricing power." Rearranging the profit-maximizing condition produces the module's single most useful formula, the Lerner Index (the inverse-elasticity pricing rule): (P − MC)/P = 1/|E|, where E is the elasticity of the residual demand curve the firm faces at that price. Read it in both directions: a firm facing highly inelastic residual demand (a small |E|, real pricing power) can sustain a large markup over cost; a firm facing highly elastic residual demand (a large |E|, little pricing power) is squeezed to a thin one, and at |E| = 1 the Lerner Index implies a markup of exactly 100% is the most a monopolist would ever charge relative to cost at that boundary, which is also why a monopolist never knowingly operates on the inelastic-to-elastic boundary or beyond it into the inelastic region below unit elasticity: raising price further there would raise revenue and lower cost (fewer units to produce) simultaneously, so profit necessarily rises, meaning a profit-maximizing monopolist's chosen quantity always sits in the elastic portion of the demand curve it faces, a clean, testable, frequently-missed fact (Common Mistake 7). Worked Example 7 solves a full monopoly problem, quantity, price, profit, the Lerner Index, and a direct cross-check that the Lerner Index equals 1/|E| computed independently from the demand curve's own slope, and closes with the deadweight loss the monopoly price imposes: the triangle of total surplus that a competitive P = MC outcome would have created and the monopoly price destroys, because trades that both a marginal buyer and the seller would have been happy to make (anyone willing to pay between marginal cost and the monopoly price) simply never happen. That triangle (not the monopolist's profit itself, which is merely a transfer from consumers to the firm) is the actual social cost of market power, and confusing the two is Common Mistake 2.
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What is price discrimination?
A monopolist who can identify and separate customer groups by their willingness to pay can do better still, through price discrimination. First-degree (perfect) discrimination charges each buyer their own maximum willingness to pay, extracting the entire consumer surplus as profit and (because every mutually beneficial trade now happens) eliminating the deadweight loss entirely, even though consumers keep none of the surplus (a real-world approximation: a car salesperson negotiating individually with each buyer). Second-degree discrimination charges different prices for different quantities or versions of the same product and lets buyers self-select (bulk discounts, a basic-versus-premium software tier) rather than requiring the seller to know each buyer's willingness to pay individually. Third-degree discrimination (the version this module computes) separates buyers into observable groups with different demand elasticities (students versus full fare, domestic versus export markets, a metro city versus a smaller town) and sets MR = MC separately in each segment, which produces the module's cleanest discrimination result: the segment with the less elastic (more inelastic) demand is charged the higher price, and the segment with more elastic demand the lower one, the identical Lerner-Index logic applied group by group. Practice P10 computes this precisely for two segments and confirms the rule holds to the decimal.
What are monopsony and natural monopoly?
Two closing notes place a ceiling on how far "concentration" alone can be trusted as a synonym for market power. Monopsony is the mirror-image case of a single (or dominant) buyer facing many sellers (a large employer in a small labor market, an agricultural processor facing many small farmers) and it produces the buy-side version of every result above (a monopsonist's optimal purchase quantity sits where its marginal cost of the input equals the value it derives from the last unit, driving the price paid below the competitive level); it is the formal content behind Porter's "buyer power" force (M4.03), cited here, not re-taught. And natural monopoly, where the efficient scale (perfect competition's cost-minimizing long-run quantity) is large relative to total demand, so that a single firm can serve the whole market at lower average cost than two firms splitting it, is the formal economic content of M4.04's efficient-scale moat source, the same equivalence cost curves already flagged; whether that scale advantage survives contact with a determined, well-funded entrant, and for how long, is precisely the question oligopoly's game theory and the pricing-power synthesis take up next.