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The Pros And Cons OF YOUR Oligopoly

Because monopoly markets have high obstacles to entry, such as patents, limit rates, cost advantages, advertising and marketing, research and development to mention a few, monopolies enjoy the advantage of making excellent normal revenue in the brief run equilibrium and by extension in the long run equilibrium. This however can bring about an unequal circulation of income in the sense that some revenue will be dispersed to shareholders as dividends, thus some low income consumers may be exploited because of higher prices plus some of their purchasing electric power may be conveyed using dividends in the bigger income brackets. Some of these supernormal profits however can even be injected into research and development programs, hence producing impressive products, if it wants to and overall producing an improved quality product for consumers, for e. g. , the pharmaceutical industry. Alternatively, there's a likelihood for a monopoly to make loss as well, this transpires in the short run if the value is leaner than the expense of the end result of the product.

Depending on its size, a monopoly can achieve economies of scales, which is when the cost per unit falls as output increases. A monopolist will seek to increase profits by setting productivity where MR=MC, and end result is at Qm and Price Pm as illustrated below.


Therefore, even if the total cost of creation has risen, the cost per product of creation would fall, allowing increased income to a monopolist by not reducing its MC, however still benefiting consumers because the cost is already low.

Some may dispute though that because of the lack of rivalry, a monopolist can rather mislead consumers through advancement of inadequate or low quality produced products. Also, because a substitute product has gone out ruled in conditions of a monopoly market, it looks for to exploit consumers through setting high prices and decreasing output levels contrary to perfect competition, consequently, deriving at a downfall in consumer surplus and a deadweight welfare loss which brings about monopolies being allocatively inefficient. It is allocatively inefficient in the sense that price is greater than marginal cost (P>MC), whereas, in a competitive market, consumers would benefit through lower prices as shown on diagrams below through tutor2u:

http://teacher2u. net/economics/content/diagrams/efficiency2. gif

http://tutor2u. net/economics/content/diagrams/monopoly_welfare. gif

Monopolies are also said to be productively inefficient since it is not producing end result at the cheapest point on the common cost curve (AC).

Another major drawback of a monopolist which might surface is the problem of price discrimination. Monopolies find it very profitable to demand different prices of different items of the same product. Yes a monopolist must lower its prices of products to be able to increase sales; however, this would only arise in districts where the demand for the merchandise is price elastic. Monopolists won't lower its prices below the center of its demand curve where demand for the merchandise is price inelastic; else its opportunity of obtaining higher profits will fall. A price discriminating monopolist is shown, again via teacher2u, where P1, Q1 is price discriminating:

http://teacher2u. net/economics/content/diagrams/pricing2. gif

The United States of America were the first country to undertake antitrust legislation and enforcement. Only since World Warfare II, have other nations done the same. The Sherman Antitrust Take action of 1890 (15 U. S. C. A 1 etseq. ) is the basis for antitrust legislation.

These are legislation sanctioned by the federal and various status governments to standardize trade and commerce by inhibiting unlawful restraints, price-fixing and monopolies in your time and effort to promote and protect competition in the market, and encourage the creation of quality goods and services available at the lowest prices to consumers, hence the fundamental goal of guarding public welfare through positive competition.

According to section 2 of Sherman Act (15 U. S. C), anybody monopolizing, attempting to monopolize, or incorporate or conspire with any other person to monopolize any area of the trade or business among the number of claims, or with international nations, shall be regarded guilty of a felony and on conviction thereof, will be punished by a fine not exceeding $10, 000, 000 in conditions of a corporation, or if every other person, they might be fined $350 000 or by imprisonment not exceeding three years, or by both said punishments in the discretion of the judge.

In summary, I agree that a monopoly can cause large number disbenefits in a market and to world all together, however I highly assume that with a federal governments authorization, through patents, trademarks, copyrights and franchises, monopolies can be beneficial to culture by creative production of products as well as providing financial incentives to local painters, writers, business people, etc, something a businesses functioning in a competitive market might not exactly be able to provide.

Word Matter: 850 words

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