Why Is Monopolies Harmful And How Can Regulation Ameliorate These Harm :: essays research papers

Why Is Monopolies defamatory and How Can Regulation Ameliorate These HarmfulEffects?Why is monopoly denigrating? How dope regulation ameliorate these harmful effects?What problems confront the regulators?In order to deduce that a monopoly is harmful, thither must be another marketsystem which is preferable to monopoly so as to offer greater makes to thepublic. A monopoly can in that locationfore be compared to perfect opposition. If thebenefits of perfect contestation outweigh the benefits of monopoly then amonopoly can be regarded as harmful since the consumers are not receiving themaximum possible advantage for their purchases.Monopolies are criticised for their high determines, high profits and insensitivityto the public. Some governments therefore, in the light of these protests,advocate policies relating to monopolies, in order to regulate their power infavour of the publics interest.There are several reasons why monopolies may be against the public interest. Itis clai med that monopolies produce at a lower level rig and charge a higherprice than under perfect competition in both the short run and the foresighted run.Consider the draw above. Assume that this monopolist attempts to maximiseprofits. Equating MC=MR yields an payoff of Qm and a price of Pm. If the sameindustry existed under perfect competition however, the price would be Ppc andoutput would be Qpc since under perfect competition P=MC=AR. The price in such asituation would frankincense be lower than under monopoly and output would be greater.Consumers obviously benefit if this is the case since P=MC implies P=Marginalutility so that consumers are maximising their total utility(Under monopoly PMCand therefore arguably, not the optimum).In the long run under monopoly, supranormal profits persist. Under perfectcompetition complete freedom of entry leads to the elimination of these profitsand forces firms to produce at the bottom of the long run average damage curve.Under monopoly ho wever, there are barriers to entry so as to prevent new firmsfrom go into the industry and reducing the monopolists profits to the normallevel. Higher prices and lower output thus continue to persist in the long run.Due to neglect of competition, it is argued, a monopolist has no incentive todevelop new techniques in order to survive. A monopolist can therefore makesupernormal profits without using the most efficient techniques. Under perfectcompetition, in order for firms to survive, the most efficient techniques mustbe adopted or developed whenever possible or else the firm which fails to do so go out be forced to shutdown. This argument leads to the conclusion thatmonopolies have higher cost curves than firms under perfect competition(Assuming