Can Monopolies Be Beneficial To Consumers?
Keywords: description of monopoly, monopolies pros and cons, effect of monopoloy
Natural monopolies are a main type of monopoly. Organic monopolies may arise because a service may have excessive fixed price attached with it isn’t profitable for another firm to enter. Additionally, it may arise due to supply of geographical area. For example, the supply of diamonds in the western’s globe is mainly managed by South Africa and in Trinidad and Tobago, WASA.
Advantages of Monopolies
There are ways consumers benefit from monopolies. Some will be indicated by Hosein and Stanlake:
Monopolies are often large dominant firms that allows them to accomplish economies of level as compare to tiny firms. Therefore, monopolies can easily make at low costs which subsequently could possibly be lower charges for consumers.
In some industries, such as water and electricity, if there is competition it would result in duplication of capital apparatus. Also, in those industries the set costs are great so costs that it has to spread over a big geographical area. When there is competition, most consumers would not be able to purchase such services. Therefore, customers benefit from low prices.
Monopolies generally achieve supernormal profits.
This implies that their average price are lower than their average revenue. Consequently, supernormal gains are obtained. Supernormal income may be used in research and expansion which would help generate more technological advanced products and in the long run would benefit the buyers.
Disadvantages of Monopolies
Although consumers may reap the benefits of monopolistic firms, occasionally monopolies may misuse their power and exploit consumers. Some cons of monopolies discovered by Pearly are:
Monopolies have control over the complete market and may sell at higher rates by restrict supply of some goods and companies which has an inelastic demand. This outcomes in increase prices of products. This therefore takes good thing about the consumer.
Products tend to be standardized and produced in higher quantities in monopolistic competition which limits the decision of consumers. This limits the independence of consumers since they can only buy goods and providers available to them. Whereas if there was competition, there could have been selection of goods and services offered by competing firms.
There are so many barriers restricting competition.This encourages inefficiency in monopolies since there will be no incentives for them. Since there is no competition, monopolies do not produce at minimum cost. If there have been competition, firms try to keep cost low and improve top quality of item which would benefit the client. Therefore, monopolies are significantly less efficient than introduction generator companies where there is usually competition.
This shows that monopolies restrict output and raise prices so the monopolist takes advantage of society. Monopoly can be an inefficient structure because it passes cost to consumers. It really is both allocatively and productively inefficient. It effects in a damage to welfare of the culture.
In monopolistic competition, there is selling price discrimination. Price discrimination serves as a the sales of the same product or services but are charged in different ways according to customer. For instance, electricity rate for commercial use are greater than domestic use. Consumers whose demand is normally inelastic would pay a higher price. Therefore, individuals are exploited.
Policy Prevention of Monopolies
Government intervention is required to prevent monopolies from choosing advantage of consumers. Subsequently, they develop policies to cope with these problems. In america, there are many guidelines to counteract the monopolies from abusing customers. A number of the policies that they use are:
By trying to produce extra competition in monopolized market – For example, if Sprite and Coca Cola wanted to merge, it could be closely examine to determine if it could make the industry in the US much less competitive and if it could cause any decrease in the monetary how to write an interview essay welfare of the united states. If it would, it could be located in court by Division of Justice and if the judge agrees they would not be able to merge. They promote competition via Anti trust Regulations. It allows government to avoid mergers, break up firms and protecting against companies from activities that can make the industry not as much competitive.
By regulating monopolies – federal government may choose to allow monopolies to continue but stop it from abusing their ability and acting against the public interest. In situations of natural monopolies, federal government regulates their prices. They are not permitted to set their prices. For instance, utilities such as water and electricity. Government determines rates of these services. Therefore, authorities would prevent consumers from being abused.
To take over monopolies – For example, the postal service in the United States. The government may take over a monopoly so as to benefit the united states. Government took over many monopolies with their goal being to regulate the monopolies power.
To prohibit monopolies – The government may tend to ban the forming of monopolies.
These views are supported by Beardshaw (1998).
In summary, monopolies have a considerable amount of power. This electric power can benefit the consumer but in most cases abuse consumers. Therefore, the government formulates policies to avoid consumer from the abuse by monopolies. There are policies such as for example creating additional competition in monopolized sector, by regulating industry, dominate monopolies, and preventing the forming of monopolies.