Disadvantages of Monopoly Essay

Higher prices and commence wideningMonopolies oftentimes mean that prices will be higher and output lower than is the case for an labor where competition prevails. Firms in one industry ar producing under(a) conditions of perfect competition, while the other(a) firm is operate under conditions of monopoly. The cost of production ar the same for each industry. exorbitance clamsHigh profits made by the monopolist are not necessarily an indication of efficient methods of production. The monopolist whitethorn, in fact, be using its market power to raise prices above marginal costs in order to increase its revenues. Higher costs and x-inefficienciesUnder competition, firms strain to minimize their inputs to produce a inclined level of output. Firms do not necessarily have to produce at the minimum efficient scale of measurement to be technically efficient, as long as they produce at the lowest costs for their given scale of output. Firms which produce on the clean cost cu rve are technically efficient or x-efficient. In other words, they produce at the lowest cost possible given their respective sizes.Competition normally implies that firms will be x-efficient. However, if firms are insulated from competition, as is the case for monopoly, then there is less incentive to minimize costs. Firms may instead adopt expense preference behavior by drop in activities to maximize the satisfaction of senior managers, at the subsequent turn over of profitability. Price discriminationMonopolists as sole suppliers can discriminate mingled with distinct roots of customers ( base on their respective elasticitys of demand) separated into different geographic or product segments.A monopolist can serve price discrimination in several ways First-degree price discrimination. frequently referred to as perfect price discrimination, this involves the monopolist charging each customer what he or she is willing to pay for a given product. By doing this the monopolist c an increase revenue and erode any consumer surplus which consumers king enjoy. Second-degree price discrimination. The monopolist charges customers different prices based on their usage. In other words, consumers might be charged a high price for initial usage, but lower prices for subsequent units consumed. This type of pricing has been used in industries such as electricity, gas, water and telephony. Third-degree price discrimination. In this case, the monopolist separates customers into markets based on different demand elasticitys. Customers with inelastic demand are charged higher prices than those with elastic demand. Restrictive practicesMonopolists often use inequitable practices to keep potential rivals out of the market. Even if rivals are successful in entering the market, the monopolist may choose to eliminate these firms by sundry(a) restrictive price and non-price strategies such as predatory pricing and good restraints. Limited technical giveSome evidence sugges ts that technical progress is often slow when a single firm or group of firms dominates an industry. As they face no real competitive pressures, monopolists are under no real pressure to spend any abnormal profits earned on research and development of new product and processes, which is often seen as a risky investment. Consequently, technical progress in these industries is believably to be slow.Referencehttp//classof1.com/homework-help/economics-homework-help/