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• Bigger prices and lower outcome
Monopolies frequently mean that prices will be higher and end result lower than is the case for an industry where competition prevails. Companies in one market are making under conditions of perfect competition, while the various other firm is operating under circumstances of monopoly.
The expense of production are the same for each market.
• Excess profits
High profits manufactured by the monopolist are not necessarily an indication of efficient methods of production. The monopolist may, in fact, be using its market electricity to raise prices above marginal costs in order to increase the revenues.
• Bigger costs and x-inefficiencies
Under competition, companies strive to minimize their inputs to produce a given level of output. Firms do not necessarily include to produce at the minimum useful scale to be technically efficient, as long as they create at the most affordable costs for given level of output. Firms which develop on the normal cost shape are officially efficient or x-efficient. In other terms, they generate at the lowest cost possible provided their respective sizes.
Competition normally means that firms can be x-efficient. Yet , if firms are insulated from competition, as is the case for monopoly, then generally there is less bonus to minimize costs. Firms may possibly instead take up ‘expense preference’ behavior by investing in activities to maximize the pleasure of senior managers, at the subsequent sacrifice of profitability.
• Price discrimination
Monopolists as sole suppliers can discriminate between several groups of customers (based on their respective elasticity’s of demand) separated into diverse geographic or product segments.
A monopolist can practice price elegance in several techniques:
•First-degree value discrimination. Generally referred to as perfect price splendour, this involves the monopolist charging each customer what he or she is willing to pay for a given product. By doing this the monopolist may increase earnings and erode any customer surplus which will consumers might enjoy.
•Second-degree price splendour. The monopolist charges customers different prices based on their usage. In other words, buyers might be charged a high cost for first usage, nevertheless lower prices for subsequent devices consumed. This type of pricing has been used in industries such as electricity, gas, water and telephone.
•Third-degree selling price discrimination. In this case, the monopolist isolates customers in markets based on different require elasticity’s. Buyers with inelastic demand are charged higher prices than those with stretchy demand.
• Restrictive methods
Monopolists typically use unjust practices to keep potential competition out of the market. Possibly if rivals will be successful in entering the market, the monopolist may possibly choose to eliminate these companies by various restrictive price and non-price approaches such as predatory pricing and vertical restraints.
• Limited technical improvement
Some data suggests that technological progress is often slow once a single firm or group of firms dominates an industry. As they encounter no real competitive pressures, monopolists are beneath no real pressure to spend any kind of abnormal income earned on research and development of new product and processes, which is often seen as a risky investment. Therefore, technical progress in these industrial sectors is likely to be slow.
Reference:
- http://classof1.com/homework-help/economics-homework-help/
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