This can lead to lower prices for consumers. If there are significant economies of scale, a monopoly can benefit from lower average costs.
See also: Disadvantages of Monopolies Advantages of monopoly In some markets – clothing, choice is as important as price Consumers in a monopoly market face a lack of choice. A monopoly faces a lack of competition, and therefore, it may have less incentive to work at product innovation and develop better products. – higher average costs because it gets too big and difficult to coordinate. Diseconomies of scale – It is possible that if a monopoly gets too big it may experience dis-economies of scale.This is because farmers have little alternative but to supply supermarkets who have dominant buying power. supermarkets have been criticised for paying low prices to farmers. Higher prices to suppliers – A monopoly may use its market power (monopsony power) and pay lower prices to its suppliers.A monopolist makes Supernormal Profit Qm * (AR – AC ) leading to an unequal distribution of income in society. – 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. Productive inefficiency A monopoly is productively inefficient because the output does not occur at the lowest point on the AC curve.(this is net loss of producer and consumer surplus) A monopoly results in dead-weight welfare loss indicated by the blue triangle. In a competitive market, the price would be lower and more consumers would benefit from buying the good. A monopoly is allocatively inefficient because in monopoly (at Qm) the price is greater than MC. Firms with monopoly power can set higher prices (Pm) than in a competitive market (Pc). For example, Tesco market share or Google 90% of search engine traffic.Ī monopoly maximises profits where MR=MC (at point m). In the UK a firm is said to have monopoly power if it has more than 25% of the market share.A pure monopoly is defined as a single seller of a product, i.e.
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