Disadvantages of monopoly Essay

Higher prices and pull down end product Monopolies practically mean that prices will be higher and output lower than is the case for an intentness where competition prevails. Firms in one industry atomic number 18 producing at a lower place conditions of perfect competition, while the new(prenominal) firm is direct under conditions of monopoly. The cost of production argon the same for each industry. wastefulness dough High profits made by the monopolizer are non necessarily an indication of efficient methods of production. The monopolist may, in fact, be using its market power to raise prices above marginal costs in order to increase its revenues. Higher costs and x-inefficiencies Under competition, firms attain to minimize their inputs to produce a wedded level of output. Firms do not necessarily have to produce at the minimum efficient carapace to be technically efficient, as long as they produce at the lowest costs for their given scale of output. Firms which pro duce on the fair(a) cost curve 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 investment funds in activities to maximize the satisfaction of senior managers, at the subsequent render of profitability. Price discrimination Monopolists as sole suppliers can discriminate surrounded by variant throngs of customers (establish on their respective elasticitys of demand) separated into different geographic or product segments. A monopolist can radiation pattern price discrimination in several ways First-degree price discrimination. oft referred to as perfect price discrimination, this involves the monopolist charging each customer what he or she is willing to pay f or a given product. By doing this the monopolist can increase revenue and erode any consumer surplus which consumers force 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 sign 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 practices Monopolists often use unsporting 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 heterogeneous restrictive price and non-price strategies such as predatory pricing and erect restraints. Limited technical mature Some evidence suggests 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 possible to be slow.Reference http//classof1. com/homework-help/economics-homework-help/.