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

Why Is Monopolies Harmful and How Can Regulation Ameliorate These HarmfulEffects?Why is monopoly mischievous? How can regulation ameliorate these harmful effects?What problems confront the regulators?In align to deduce that a monopoly is harmful, there must be another marketplacesystem which is preferable to monopoly so as to offer greater benefits to thepublic. A monopoly can therefore be compared to perfect competition. If thebenefits of perfect competition outweigh the benefits of monopoly then amonopoly can be regarded as harmful since the consumers are not receiving themaximum possible utility for their purchases.Monopolies are criticised for their high prices, 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 claimed that monopolies produce at a lower level take and charge a higherprice than under perfect competition in both the short run and the long run.Consider the diagram above. Assume that this monopolist attempts to maximiseprofits. Equating MC=MR yields an output of Qm and a price of Pm. If the aforementioned(prenominal)industry 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 thus 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( infra monopoly PMCand therefore arguably, not the optimum).In the long run under monopoly, supernormal profits persist. beneath perfectcompetition complete freedom of entry leads to the elimination of these profitsand forces firms to produce at the bottom of the long run average cost curve.Under monopoly however, the re are barriers to entry so as to prevent new firmsfrom entering 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 lack 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 nearly 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 sowill be forced to shutdown. This sway leads to the conclusion thatmonopolies have higher cost curves than firms under perfect competition(Assuming