Where two firms join at the same stage of production, e.g. A government may be able to regulate monopolies to gain benefits of economies of scale, without the disadvantages of higher prices.Therefore, a monopoly may be needed in this industry. building new aeroplanes, research drugs). Some industries need a lot of research and development (e.g.Therefore monopoly would be very inappropriate for restaurants. However, for restaurants, there are no significant economies of scale and it is important to have a choice. For example, a monopoly is needed in a natural monopoly like tap water. It depends on the industry in question.See also: Advantages of Monopolies Evaluation of monopolies Eurotunnel has a monopoly on train services from London to Paris, but faces competition from airlines. Also, a monopoly may face competition from related industries, e.g. In this case, it is their market dominance which comes from being innovative and meeting a consumer demand.Ī domestic monopoly may face competition from abroad, and therefore what may appear as a monopoly may still face competitive pressures. You could make a similar case for firms, such as Apple and Amazon. It is hard to argue Google has x-inefficiency because of its monopoly power. Google gained monopoly power through offering innovative new products. A firm may gain monopoly power because it is the most efficient In many industries which require substantial investment – a competitive industry with many small firms would be unsuitable.ģ. This is important for industries like medical drugs which require a lot of risky investment. Monopolies make supernormal profit which can be invested in Research & Development. Therefore, for natural monopolies and industries with significant economies of scale, monopolies can be more efficient. In the above example If there were 3 firms producing 3,000 units at an average cost of £17, average costs would be higher than a monopoly producing 10,000 units, and an average cost of £9.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.
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.