Monopoly: Advantages and Disadvantages by Matt Smith

Krishan,Maddie,Lasya,Natasha

2014-10-02 13:15:09 UTC

ADVANTAGE OF A MONOPOLY:

The monopolist will have supernormal profits, therefore they may try to be dynamically efficient. For example Google have become more innovative in their products and services e.g. Google glass. This benefits consumers because they have more choice and the quality of the products have increased.

However, a monopolist may not want to be dynamically efficient due to high barriers to entry and lack of competitive pressure. For example, Severn Trent, which is a geographical monopoly, will not need to be dynamically efficient as they have exclusive control of scarce resources I.e. water network to households and are a natural monopoly.

DIAGRAM:

Being dynamically efficient lowers the average cost curve to AC2, and moves the marginal cost from MC1 to MC2. This changes the profit maximastion point so quantity increases to Q2 and price decreases to P2 therefore benefitting the consumer with lower prices. It also benefits the firm as their supernormal profits increase substantially.

Ravi, Sonali, Bismah, Shivani

2014-10-02 13:15:21 UTC

As Tesco is a monopoly it benefits from Purchasing economies of scale. This means they are able to buy their stock at negotiated lower prices as they have monopsony power. Therefore cost per unit of output decreases and they are able to pass these reduced costs on to consumers. This would also create a barrier to entry as firms would not enter the market due to low profits. However due to expansion of the firm beyond the minimum efficient scale Tesco can experience diseconomies of scale. This may be because of a lack of co-ordination and control as they appoint a new manager. Additionally, due to their monopoly power Tesco may not see an incentive to be allocatively efficient and so are not producing where P=MC.

http://m.bbc.co.uk/news/business-29306444

Michael and Humairaa and kishan

2014-10-02 13:15:23 UTC

Apple experience purchasing economies of scale (they also have monopsony power) so have lower average costs so make more profit which they can invest (dynamic efficiency) in research and development ie new, faster processors so consumers benefit from this as they get better products

Kishan,Tanmay, Adill, Harpreet

2014-10-02 13:15:42 UTC

The advantage to the consumer of purchasing from a monopoly is that economies of scale occurs. This could be due to many reasons such as financial, purchasing, technical, networking which leads to a fall in the cpu and an increase in output. This means that consumers will face lower prices, this will cause a rise in disposable income. Moreover, there is an advantage to the monopoly as they are making supernormal profits which means they are dynamically efficient in the long run. For example, Amazon dominate the market for books , they can use their supernormal to invest in Research and development. In addition, the marginal cost of selling an extra unit is close to zero but as more consumers purchase more revenue will rise, therefore huge networking economics of scale are exploited.

Ravi, Sonali, Bismah and Shivani

2014-10-02 13:16:46 UTC

One social disbenefit to consumers is that monopoly power is becoming widespread to a point where smaller community-like shops and no longer able to survive with the likes of Tesco and Asda that have authority in marketing and offering cheap products due to their marketing and purchasing economies of scale. Soon enough, all smaller firms and stores may be extinct as consumers continue to keep these supermarkets thriving in a time where real wages are still not growing.

Tomasz, Amanpreet, Daskgana, Tanisha, Yonis

2014-10-02 13:16:55 UTC

One disadvantage to consumer is that monopolies can abuse their power and charge higher prices because consumer have a lack of alternatives. An example of this would be amazon as they can charge higher prices for e-books because they have monopsony power.

Amanpreet, Daskgana,Tomasz, Tanisha,Yonis

2014-10-02 13:17:16 UTC

One advantage to consumers is that as monopolies benefit from economies of scale they can charge their consumers lower prices due to cheaper costs per units e.g coca cola will benefit from purchasing economies of scale but this is unlikley as it depends on the strenghth of the barriers to entry as if its really weak other companies can come into the market and takeover which could cause a oligopoly or even a perefect competive market

daskgana 💁, Amanpreettomasz, tanisha, yonis

2014-10-02 13:18:52 UTC

An advantage to consumer is that monopolies controls a large share of the market, they have more resources to spend on researches and development, therefore will enable them to bring new ideas i

Amanpreet, Daskgana, tomasz, Tanisha, Yonis

2014-10-02 13:20:29 UTC

Another disadvantage for consumers is there is lower variety of products to consumers to purchase because monopolies have less of an incentive to spend money on research and development due to the the lack of competition in a market e.g Nokia and Hoover

Ammaar and Hamzah

2014-10-02 13:24:51 UTC

Amazon is a large company which experiences purchasing economies of scale. This allows te company to reduce their cost per unit. They also have monopsony power as they have a large market share (61%), and so suppliers of books are almost forced to sell to Amazon. Furthermore, Amazon has the possibility to be dynamically efficient as they make abnormal profits and can use that for research and delevelopment to make their resources better. However there is no competition so they do not have incentive to be dynamically efficient.

Ravi, Sonali, Bismah and Shivani

2014-10-02 13:27:32 UTC

The likes of Aldi and Lidl who are "hard-discounters" are beginning to grow in areas where monopolies are failing to identify themselves either as a cheap supermarket or a high quality supermarket, they operate differently to where their cpu are lower and therefore they can offer cheaper goods and services to their customers. All in all, these "hard-discounters" are much closer to productive efficiency than the monopolies because they have much lower cpu. Additionally to this in a time where real incomes are still low, consumers are searching for these inferior goods that are showing to be the same quality as these large brands, so the barriers to entry seem to be slightly weakened.

Amanpreet, Daskghana ,Yonis, Tomasz, Tanisha

2014-10-02 13:27:45 UTC

some monopolies operate in a market where the barriers to entry are very high so therefore there is no incentive for monopolies to be dynamically efficient

Daskgana, Tanisha, Amanpreet, Tomasz, Yonis

2014-10-02 13:32:42 UTC

An advantage to a firm is that the firm may become a monopoly through being efficient and dynamic. A monopoly is therefore a sign of success not inefficiency. For example; Google has gained monopoly power through being regarded as best firm for search engines. Apple has a degree of monopoly power through successful innovation.

Krishan,Lasya,Maddie,Natasha

2014-10-02 13:34:15 UTC

AMAZON BOOK MARKET:

They benefit from purchasing economies of scale as they have monopsoby power over the book .market, this lowers their leverage costs which could benefit the consumer because it means that Amazon are able to charge Lower prices be ca use of their scale. However as Amazon begin to eliminate the competition by undercutting their prices the barriers to e try will become stronger meaning there is less I centive to charge competitive prices so Amazon may abuse their monopooly power and charge the consumer higher pri es in the long run

Daskgana, Amanpreet , tanisha, yonis, tomasz

2014-10-02 13:40:10 UTC

A disadvantage to consumers; Price determination under the monopoly is determined at the level where the marginal revenue is equal to the marginal cost. When the marginal revenue is greater than the marginal costs the firm will tend to produce more and more units resulting into an increase in supply which will bring the prices down.

Amanpreet , Tanisha , Daskghana , Tomasz , Yonis

2014-10-02 19:18:47 UTC

There are so many barriers restricting competition.This encourages inefficiency in monopolies since there are no

incentives for them. Since there is no competition, monopolies do not produce at minimum cost. If there were competition, firms try to keep cost down and improve quality of product which would benefit the customer. Therefore, monopolies are less efficient than firms where there is competition this would mean the price would fall and consumers would benefit from the lower prices.

Lasya,Tash, Krishan, Maddie :)

2014-10-03 09:14:04 UTC

Another disadvantage of a monopoly is that they can exploit higher prices, this particularly occurs in markets where barriers to entry are high and there is a lack of substitutes. For example Eurostar is a monopoly in the European rail transport market, currently only the Eurostar has the use of the Channel Tunnel giving it a total monopoly of trains in Europe. Furthermore there is a significant barrier to entry for new competitors has the costs of buying the trains, obtaining safety license etc can be quite expensive. This leads Eurostar tickets to be overpriced for what they are worth . Due to the fairly inelastic demand, consumers are willing to pay, leading to a decrease in the overall consumer surplus.

2018-09-22 14:58:04 UTC

An advantage to consumer is that monopolies controls a large share of the market, they have more resources to spend on researches and development, therefore will enable them to bring new ideas i

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2021-06-06 21:02:51 UTC