What Are The Advantages And Disadvantages Of Monopoly Market?

5 Answers

Adam Yare Profile
Adam Yare answered
A monopoly market occurs when one person or company holds great sway over a defined market segment, such as the production of a commodity or electronic product. When a corporate or government entity controls this market segment, they also control who has access to what they produce. Obviously, there are pros and cons to a monopoly market - in general, it benefits the manufacturer, who can set almost any price they like and distribute the goods in any way they see fit.

This type of market can be detrimental to consumers, who must absorb the price increases for any product or service; consumers will also have very few choices about how to purchase the item or items they want. A monopoly market places plenty of power in the hands of just a few; often, someone who has a monopoly in the marketplace will hold a patent or copyright that allows them to produce an invention, formula, or product that no one else can copy effectively. Usually, these patents or copyrights will not exist in perpetuity. For example, certain medications have patents that run out - when they do run out, other pharmaceutical companies can access formulas and create generic versions of medicines. This sort of copying can ease the monopoly market and create more choices and better price points for consumers.

Lack of competition is an advantage for producers who hold a monopoly market in their particular segment of industry; this benefit can result in wealth and a strong brand name that gives a company an excellent reputation. However, if a company is too vicious and competitive in their attempts to hold on to a monopoly, they may be subject to legal actions from competitors or the federal government - Microsoft's anti-trust suit (brought about due to their desire to crush smaller companies who produced similar products) is one key example of what happens when a corporation becomes too heavy-handed about maintaining their monopoly.
Anonymous Profile
Anonymous answered
Monopoly Graph

  • A  Monopolist is a price maker because he does not face any competitors
  • A monopolist will seek to maximise profits by  setting output where MR = MC
  • This will be at output Qm and Price Pm.


Disadvantages of a Monopoly

  • Higher Prices
    Higher Price and Lower Output than under Perfect Competition. This
    leads to a decline in consumer surplus and a deadweight welfare loss

  • Allocative Inefficiency.
    A monopoly is allocatively inefficient because in monopoly the price is
    greater than MC. P> MC. In a competitive market the price would be
    lower and more consumers would benefit

  • Productive Inefficiency A monopoly is productively  inefficient because it is not the lowest point on the AC curve.

        

      
  • X - Inefficiency.
    - It is argued that a monopoly has less incentive to cut costs because
    it doesn't face competition from other firms.Therefore the AC curve is
    higher than it should be.

  • Supernormal Profit. A  Monopolist makes Supernormal Profit Qm * (AR – AC ) leading to an unequal  distribution of income.

        

      
  • Higher Prices to Suppliers -
    A monopoly may use its market power and pay lower prices to its
    suppliers. E.g. Supermarkets have been criticised for paying low prices
    to farmers.

  • Diseconomies of Scale -
    It is possible that if a monopoly gets too big it may experience
    diseconomies of scale. - higher average costs because it gets too big

        

      
  • Worse products Lack of competition may also lead to improved  product innovation.

        

      
  • Charge Higher prices to suppliers. Monopolies may use their supernormal profits to charge higher prices to suppliers.

Advantages Of Monopoly
  • Research
    and Development. Supernormal Profit can be used to fund high cost
    capital investment spending. Successful research can be used for
    improved products and lower costs in the long term. E.g.
    Telecommunications and Pharmaceuticals.

  • Economies
    of scale. Increased output will lead to a decrease in average costs of
    production. These can be passed on to consumers in the form of lower
    prices.

      See: Economies of Scale

  • International
    Competitiveness. A domestic firm may have Monopoly power in the
    domestic country but face effective competition in global markets. E.g.
    British Steel
  • A firm may become a monopoly through
    being efficient and dynamic. A monopoly is thus a sign of success not
    inefficiency. For example - Google
SidrA Tasneem Profile
SidrA Tasneem answered
Advantages of monopoly markets are as under:
There is no risk of over production. The owner have edge that he knew his product will be sold because people prefer his product then other. All the capital is invested in Research & Development. Reduction in price is advantage to the monopoly market owner because by lowering prices, demand will get high and efficiently used the organization resources.
 
Disadvantages of monopoly market are:
Increase in prices of product any time because the organization know that there is no competitor, it leads to restriction of consumer choice. Exploitation of labour and no competitor in market leads to inefficiency.
srh kazmi Profile
srh kazmi answered
Monopoly is where one firm is the sole supplier or controls a large part of the market share. The advantages of a monopoly are: where large scale capital is required, average costs can fall if only one firm produce the goods. Monopolist will have better resources to spend on research and development and will be able to bring new techniques and products to strengthen its position. Monopoly would mean economies of scale which in turn would lead to lower priced experts. A monopolist reacts to demand changes in a more effective manner than other forms. Disadvantages of monopolies also exist. They charge higher prices as there is no other competitor in the market.

They abuse consumers in this way. Monopolist has the power to restrict market supply. It is also argued that because there is no competition monopolist have little incentive to introduce new products and techniques. Monopolies also restrict entries of new firms and drive them out of business. Moreover there is lack of choice for consumers in the market. In a monopoly firm do not respond to consumer demand. When there is competition forms supply more of what consumers demand.
Anonymous Profile
Anonymous answered
The disadvantages are that
1)there are higher prices charged to the costumers because there no competitors, and no substitutes or cheaper alternative available.
2)there is price discrimination
3) lack of promotion efforts
4) inefficiency of factor of production

Answer Question

Anonymous