A monopoly occurs when a single firm is the sole supplier of a product or service in a market with no close substitutes.

One primary reason is the existence of high barriers to entry. These can include control over scarce resources, high capital requirements, locational advantages, and ownership of key inputs. For example, De Beers had a monopoly in the diamond industry, controlling most of the diamond mines. Further, there are legal barriers, for instance, governments may grant a company exclusive rights to produce or sell a product, creating a legal monopoly. An example is AT&T, which monopolized telephone service in the U.S. until the government broke it up. To add on, Patents and copyrights also protect innovations and original works, effectively granting a temporary monopoly to the creators. For instance, pharmaceutical companies often monopolize new drugs they develop.

Another reason for monopolies' existence is high switching costs. Some industries have such high start-up costs that it becomes impractical for new players to enter. This is common in industries like utilities (electricity, water supply).

Economies of scale are another reason why monopolies occur. In some industries, production costs decrease as the quantity produced increases. A natural monopoly occurs when one company can supply the entire market at a lower cost. Public transportation is often cited as an example here.

These conditions create a market environment where a single firm dominates. In terms of economic implications, monopolies can lead to allocative inefficiency, deadweight loss, and reduced consumer surplus.