Sociology

The Hidden Rule of Business: Why All Real Profit Comes from a "Monopoly"

Actual economic profit, which exceeds a normal return, stems from having some monopoly advantage. This could be a prime location, government protection, exclusive rights, or a strong brand. When profits persist, it usually indicates limited competition.

T Jackson

11 Dec 2025 — 4 min read

Photo by Maria Lin Kim on Unsplash

Abstract

What is the purpose of a business? If you ask that question in a crowded room, the echo will answer: “To make a profit!” And that’s correct. But it doesn’t tell the whole story. In a competitive market, profits tend to vanish. This quiet rule in economics rarely emerges at parties.

Let me explain. Picture a farmer, we’ll call him Jacob, standing at his fence line, looking over fields of corn that stretch for miles. It’s the same #2 yellow dent corn his neighbor grows, and his neighbor’s neighbor. It’s all identical. When harvest comes, Jacob can’t decide to charge more. If he does, the buyer will turn to the next farm down the road. To sell his harvest, Jacob has no choice but to take the price everyone else is getting. Once he’s paid for seed and diesel and put a value on his own long days in the field, what’s left is enough to do it all again next season. He isn’t building wealth; he’s making ends meet. That’s the brutal rule of this game: when what you sell is no different from what anyone else sells, you don’t build an empire. You try to outlast the squeeze because any chance for real gain is the first thing competition takes off the table.

This is Jacob’s reality. If his profits remain close to zero, how do we account for the massive successes we see everywhere else? The answer lies in what Jacob doesn’t have: a monopoly advantage.

So how do companies like Apple, big drug companies, or even your favorite local pizza shop make steady profits? They all have some monopoly advantage. A monopoly isn’t always one company controlling everything. It’s any special edge that makes a product or service unique and shields it from direct competition. Differentiation means making a product that stands out. This can be through unique features, strong branding, or high quality. Yet, it doesn't mean there will be no competition. Recognizing this distinction helps sharpen a business’s strategic approach. There are a few main types of monopoly advantages.

The Monopoly of Location: The simplest kind. If you own the only gas station for 50 miles along a highway, you have a local monopoly. Customers face challenges when switching to another provider. The same goes for a one-of-a-kind restaurant in a small town or a store in a prime city spot. Your advantage isn’t always a better product, but being in the right place. Geography itself protects you from competition.
The Monopoly of Ideas: Patents and Copyrights. The government gives this type of monopoly. When a company invents a new drug or creates new software, it can get a patent. This grants the company the sole legal right to sell that invention for a specified period of time. The government does this to encourage innovation. The chance to earn profits encourages the risks of research and development. Pharmaceutical companies say they need big profits to fund new medicines and technologies. They compare this to how copyrights protect the creators of books, movies, and music. Many large drug companies in the U.S. often use a big part of their profits for dividends and stock buybacks. They don’t focus on innovation.
The Monopoly of Favor: Legal Rights and Regulations. Sometimes the government gives exclusive rights for reasons other than innovation. A utility company may be the only provider of water or electricity in an area. This is often more efficient than having many sets of pipes or wires. A company might also get an exclusive contract to supply food to a school district. In some industries, complex rules can make it difficult and expensive for new businesses to get started. This situation helps protect the companies that are already in place. The government limits competition through regulations, licenses, and tariffs. This protects established businesses from competition, which, most of the time, leads to stagnation. Government intervention has a dual role. It acts as a moat, protecting established players. But it can also be a minefield, stifling innovation and leading to decline.
The Monopoly of the Mind: Brand Power. There is also a monopoly on customers' minds. This happens when a product stands out so much that people don’t see any other brand as equal. Think of Coca-Cola, Nike, or Starbucks. Many colas, shoes, and coffee shops exist. Yet, some brands stand out. They've created strong identities and loyal customers. This loyalty lets them charge higher prices. People feel they can’t get the same thing anywhere else. This kind of monopoly comes from good marketing, consistency, and experience, and it can be very powerful.

Once you understand this idea, you begin to see business from a new perspective. The drive for profit is a search for a monopoly advantage. Every business should ask, "What makes me unique? What protects me from competition?" Without an answer, like the corn farmer facing tough competition and low profits. Profitable companies need a monopoly to stay profitable. It's usually there, right in front of you. Ask yourself: Which monopoly are you nurturing in your own business endeavors without revealing it? By reflecting on this question, you can plan strategies that set your business apart from the competition.

References:

https://fiveable.me/intermediate-microeconomic-theory/unit-5/product-differentiation-advertising/study-guide/7ko0FjWhe0z00GV2
https://www.library.wisc.edu/research-support/scholarly-communication/copyright-resources/copyright-basics/
https://www.sciencedirect.com/science/article/abs/pii/S0967070X12001862
https://www.nber.org/papers/w28381
https://www.portada-online.com/feature/dunkin-nfl-and-mcdonalds-among-brand-keys-2024-loyalty-juggernauts/