Monopolies Good or Bad

6 June 2016

A monopoly is a single company that owns all or nearly all of the markets for a type of product or service. A monopoly is at the opposite end of the market structure. It is where there is no competition for goods or services and a company can freely charge a price or prevent market competition. Monopolies have three built in assumptions, one seller, no substitutes or competition, and extremely high barriers to entry. Examples of monopolies are public utilities and US Postal Service.

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So what are the social characteristics of monopolies? They act as the single supplier. The organization can gain complete control over the market by becoming the sole provider of a good or service. The lack of competition leaves a company with greater control over the quality of production. It also gives the company the ability to pump up prices without the fear of being challenge by other companies. This forces the customer to either buy from the monopoly or go without. A monopoly has access to specialized information. By doing this, the company maintains complete control over the market.

This information may give the company the benefit of special production practices. The specialized information may also come in the form of legal tips regarding trademarks, copyrights and patents. Taking control over this special information gives the company an edge while leaving all of its competitors at a disadvantage. A monopoly has a unique product. The organization gains control over the market by offering a product or service that is unlike any other. The product or service does not have a substitution. The company may use specialized information such as legal patents, copyrights and trademarks in order to establish legal authority over the production of certain goods and services.

So over all are monopolies good for the economy? Since monopolies are the only provider, they can set pretty much any price they choose. They can do this, regardless of the demand, because they know the consumer has no choice. Not only can monopolies raise prices, they can also supply inferior products. Monopolies are also bad for an economy because the manufacturer has no incentive to innovate, and provide new and improved products. Another reason monopolies are bad is that they can create inflation. Since they can set any price they want, they will raise costs to consumers.

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