Characteristics of a Consumer Monopoly

Companies that are consumer monopolies have a monopoly on what consumers want, thus giving them the freedom to charge higher prices, creating higher profit margins and a higher return for investors.

You can go anywhere in the world and find Coca-Cola. Everybody stocks Coke because everyone drinks it. If stores and restaurants didn’t have Coke they would lose business. Coke is so branded in people’s minds that most people will buy it their whole lives paying significantly more than any other similar cola drink. Coke is a serious consumer monopoly!

What about MacDonalds? Can anyone open a fast-food restaurant that will put a serious dent in MacDonalds business? What would it take to get people to stop using Microsoft’s Windows software? What are the chances of that happening in the next 15-20 years?

Although these companies are great businesses they are still susceptible to temporary market conditions. Bad news can throw the stock price way down and create a good buying opportunity.

Many consumer monopoly companies don’t have to rely on sophisticated manufacturing plants and constantly improving the technology of those plants. Just the ones I mentioned – Coke, MacDonalds, Microsoft – they don’t need to continually upgrading their machinery to create their products for a period of many years.

On the other hand, a company like General Motors who sells a price-sensitive commodity has to spend millions or billions to improve its production facilities to get new models to market and stay competitive. And we all know what is happening to GM right now!