Advantages and Disadvantages of Monopolies - TO FIRMS

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Advantages and Disadvantages of Monopolies - TO FIRMS

Advantages

  • Monopoly power - they can influence the price of a good on their own - can act as price makers
  • Few competitors - find it easier to differentiate their products
  • Can make supernormal profits and maintain in the long run - barriers to entry are total so supernormal profits are not competed away
  • Benefit from EOS - can keep average costs (and maybe prices) low
  • Security of long term supernormal profits means they can invest and improve in the long run - can lead to dynamic efficiency

Disadvantages

  • Main disadvantages are to smaller firms wishing to compete / produce in the same market
  • They will be unable to compete with the high production levels of monopolies
  • If it is pure monopoly other firms will not compete at all
  • Firms may become so large that they begin got face DOS as output grows to such a high level
  • May face issues in managing and motivating workers

Evaluation

Overall, a monopoly is beneficial to those who are part of the monopoly power. They can maintain supernormal profits meaning they feel secure in making long term and large investments. They also benefit from economies of scale and are able to influence price. However, other firms will feel unable to compete and this may limit consumer choice.

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