Advantages and Disadvantages of Monopolies - TO CONSUMERS AND SOCIETY

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Advantages and Disadvantages of Monopolies - TO CONSUMERS

Advantages

  • Supernormal profits can be invested into development and innovation, leading to increased choice / improved products
  • Natural monopolies - not having competition keeps costs lower e.g. in water supply
  • Intellectual Property Rights (IPRs) e.g. trademarks can be in consumer interests as they provide an incentive to innovate if supernormal profits can be made

Disadvantages

  • No need for firms to innovate or change their products to meet consumer preference - may become complacent (higher costs curves as there is no competitive pressure)
  • Limited consumer choice as there are no / few alternatives
  • Firms may use monopsonist power to exploit consumers (e.g. higher prices or lower quality)
  • Monopolist maximises where MC=MR so set price higher than in a competitive market, this leads to a fall in consumer surplus
  • Firms may be productively inefficient (not producing at lowest point of AC curve)
  • May exploit suppliers e.g. Tesco offering low prices to milk suppliers as they have no alternative

Evaluation

While monopolies can potentially provide improved quality and innovative products, as well as lower costs, this all depends on what choice the monopoly makes. They may instead exploit customers with higher prices and falling quantity, along with limited choice of products.

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