Monopoly Power

Created by: Chloe Budd
Created on: 28-05-14 14:17


	Monopoly Power
	Advantages Supernormal profit can be used to overcome short term difficulties Supernormal profit can be used to invest and maintain a competitive edge Supernormal profits can also be used for R+D They have the financial power to match large overseas competitors Cross subsidisation can lead to an increased range of goods and services available to the consumer Price discrimination may raise total revenue which can allow the survival of a product Take advantage of economies of scale Supernormal profit act as an incentive for new firms to break down barriers to entry Monopolists can avoid undesirable duplication of services	Disadvantages Supernormal profits means there is less incentive to be efficient Supernormal profits gives the resources to raise barriers to entry Higher prices and lower output for consumers Monopolists may undertake price discrimination to reduce consumer surplus Monopolists may waste resources by undertaking cross subsidisation Monopolists do not produce at the most productively efficient point of output Monopolists can be complacent and develop inefficiencies Monopolies may lead to a misallocation of resources by setting price above marginal cost
	Evaluation While monopolies can be beneficial in terms of economic growth and business confidences, they are inevitably disadvantageous to the consumer and other competition.

Monopoly Power

Advantages

Supernormal profit can be used to overcome short term difficulties
Supernormal profit can be used to invest and maintain a competitive edge
Supernormal profits can also be used for R+D
They have the financial power to match large overseas competitors
Cross subsidisation can lead to an increased range of goods and services available to the consumer
Price discrimination may raise total revenue which can allow the survival of a product
Take advantage of economies of scale
Supernormal profit act as an incentive for new firms to break down barriers to entry
Monopolists can avoid undesirable duplication of services

Disadvantages

Supernormal profits means there is less incentive to be efficient
Supernormal profits gives the resources to raise barriers to entry
Higher prices and lower output for consumers
Monopolists may undertake price discrimination to reduce consumer surplus
Monopolists may waste resources by undertaking cross subsidisation
Monopolists do not produce at the most productively efficient point of output
Monopolists can be complacent and develop inefficiencies
Monopolies may lead to a misallocation of resources by setting price above marginal cost

Evaluation

While monopolies can be beneficial in terms of economic growth and business confidences, they are inevitably disadvantageous to the consumer and other competition.

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Monopoly Power

Monopoly Power

Advantages

Disadvantages

Evaluation

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