Quasi-monopoly is a kind of monopoly where there is more than one service provider for a particular good/service but the nature of the competition is such that similar kind of service/pricing is offered to the customers.
Generally speaking, quasi-monopolies occur when the marketplace in question has several characteristics:
- There are a very few number (generally 4 or less) of very large suppliers
- The requirements of the market are such that there is an extremely high barrier-of-entry to be competitive; that is, large, well capitalized (and possibly vertically-integrated) companies cannot effective be challenged by any newcomer not of the same size. In essence, the market is impenetrable by smaller (and/or more innovative) companies.
- The type of product or service being produced leads to very little (if any) product differentiation between the companies in the market
- Pricing is thus more a factor of the lack of competition between the few existing companies, than it is supply/demand.
For instance, a good place where a quasi-monopoly can occur is aluminum production. Ownership of supplies of aluminum create a barrier to entry, and the extremely large amounts of capital (and large efficiency gains that being fully vertically integrated provide) required means that such industries tend to have only a couple of huge firms. The product (processed aluminum) is very straightforward. Thus, this is a marketplace where quasi-monopolies almost always exist, with seldom more than 2 or 3 companies in the entire market.