![]() ![]() ![]() Charging a higher price than in a more competitive market.Monopolies can be criticised because of their potential negative effects on the consumer, including: The disadvantages of monopoly to the consumer The result is lower price and higher output in the long run. This makes the monopolist’s supply curve to the right of the industry supply curve. If some of these profits are invested in new technology, costs are reduced via process innovation. ![]() However, monopolies are protected from competition by barriers to entry and this will generate high levels of supernormal profits.Why spend large sums on R&D if ideas or designs are instantly copied by rivals who have not allocated funds to R&D?.Firms need to be able to protect their intellectual property by establishing barriers to entry otherwise, there will be a free rider problem.A firm needs a dominant position to bear the risks associated with innovation.Innovation is more likely with large enterprises and this innovation can lead to lower costs than in competitive markets.High profit levels boost investment in R&D.It has been consistently argued by some economists that monopoly power is required to generate dynamic efficiency, that is, technological progressiveness.According to Austrian economist Joseph Schumpeter, inefficient firms, including monopolies, would eventually be replaced by more efficient and effective firms through a process called creative destruction.This is certainly the case with Microsoft. Domestic monopolies can become dominant in their own territory and then penetrate overseas markets, earning a country valuable export revenues.They can benefit from economies of scale, and may be ‘ natural’ monopolies, so it may be argued that it is best for them to remain monopolies to avoid the wasteful duplication of infrastructure that would happen if new firms were encouraged to build their own infrastructure.Monopolies can be defended on the following grounds: See also: Natural monopolies Evaluation of monopolies The advantages of monopolies A monopolist with no substitutes would be able to derive the greatest monopoly power.With no close substitutes, the monopolist can derive super-normal profits, area PABC. Given that price (AR) is above ATC at Q, supernormal profits are possible (area PABC). At profit maximisation, MC = MR, and output is Q and price P. In general, the level of profit depends upon the degree of competition in the market, which for a pure monopoly is zero. As with all firms, profits are maximised when MC = MR. Monopolies can maintain super-normal profits in the long run.Given that this will reduce competition, such mergers are subject to close regulation and may be prevented if the two firms gain a combined market share of 25% or more. A monopoly could be created following the merger of two or more firms.Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names, giving them exclusive rights to sell a good or service, such as a song writer having a monopoly over their own material.The Royal Mail Group finally lost its monopoly status in 2006, when the market was opened up to competition. Governments may grant a firm monopoly status, such as with the Post Office, which was given monopoly status by Oliver Cromwell in 1654.If a firm has exclusive ownership of a scarce resource, such as Microsoft owning the Windows operating system brand, it has monopoly power over this resource and is the only firm that can exploit it.Monopolies can form for a variety of reasons, including the following: For the purposes of regulation, monopoly power exists when a single firm controls 25% or more of a particular market. A pure monopoly is a single supplier in a market. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |