Advantages and Disadvantages of Monopoly

Advantages and Disadvantages of Monopoly

Monopoly. Advantages and Disadvantages by Laura Umaraitė

A Monopoly is a market structure wherein there is only one seller of a particular good in the market and a large number of buyers of that good. We discussed the various characteristics of a Monopoly and its meaning in the previous article, which you can refer to here. A monopolistic market structure is a concept of economics.

If you need Economics Assignment Help, visit www.makemyassignments.com. There are also a number of advantages and disadvantages of a monopolistic market structure which impacts both the buyer as well as the seller along with the whole market and economy related thereto.

Such advantages and disadvantages of a monopoly are –

Advantages

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Stability of prices

The prices in a normal competitive market, are set by the forces of competition as well as the market forces of demand and supply. In a monopoly on the other hand, since there is no competition, there being only one seller of a good in the market, the prices are determined by the seller themselves as per their wishes and whenever they would like to change the price. As a result, the prices of a monopoly remain much stable as compared to a competitive market.

Source of revenue

Despite the fact that monopolies are often a source of restricted competition and entry of other sellers in the market, they are still encouraged because monopolies can earn good amounts of profits, being the only sellers in the markets and hence, they become good sources of revenue for the government which benefits the society as a whole.

Profits

As already discussed, a monopoly refers to a single seller operating and selling a good in the market of a large number of buyers. Since there are no other sellers of such good in the market, the entire demand of such good is enjoyed by the one seller and as a result, monopolies become able to make a considerably massive amount of profits through their sales in the markets.

Source of essential public utilities

Monopolies are often state controlled and run companies that help in producing and making available goods that are essential and important for public utilities that operate on large scale to provide the essential goods and services to the people in the community. There are many monopolies in a state that are government owned and controlled such as those providing public transport facilities, water and electricity resources, etc.

Potential to face depression

The nature of a monopoly is such that being the only seller of a particular good, the company would always gain the demand of the consumers solely, which means that even in situations like economic depressions, a monopoly can survive because of the demand received by the consumers in the market.

Disadvantages

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Exploitation of consumers

Since there is only one seller in the market in a monopoly, the entire power of providing the good, at a certain price or at a certain quality remains in the hands of the seller and no power lies in the hands of the consumers. Also, there are no market and competitive forces to keep the goods of a monopoly in check in terms of price and quality. Hence, such a market structure can be exploitative for the consumers in the market.

Price discrimination

Since Monopolies decide their own prices in the markets, with no competition to worry about, it has been seen often that the seller tends to charge different prices from different sets of consumers, causing a discrimination in the prices.

Quality of goods

Since there is no competition in such a market, a monopoly can often provide low or inferior quality of goods to save their costs of production and make more profits, thereby causing a loss to the consumers.

Allocation of resources

The allocation of resources in a monopoly is often biased and distorted because in the production of such goods, the resources can often not be acquired by small firms or sellers or at least by a significant number of firms in the market, providing a benefit to the seller to be able to control and restrict the supply as well as competition in the markets.

Unfair trade practices

It is well-known that a monopolistic market often is a barrier to new entrants in the markets. In a monopoly, in order to keep enjoying the various benefits of being the only seller in the market, and to keep making the massive profits, monopolies often engage into unfair trade practices to ensure that competitors in the market are ousted and do not impact their business in the markets.

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Advantages and Disadvantages of Monopoly

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Advantages and Disadvantages of Monopoly

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