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Do you think the advantages of monopolies to consumers and producers outweigh the..

disadvantages?

This is a 25-mark question, I have these advantages & disadvantages:

Advantages-
- Economies of Scale
- If it's a public service [like water], it saves competitors from spending a lot as there are high fixed costs.
- Government revenue from taxation.
- Supernormal profits go towards research and development.

Disadvantages-
- They are price makers so can make prices high.
- Can price discriminate.
- Can limit output for more profit.
- Can sell inferior goods and services.

I'm definitely leaning towards saying the advantages do NOT outweigh them, but I'm not sure if I've got the most obvious advantages?
Can anyone help?

Thanks :smile:
(edited 7 years ago)
Reply 1
Avatar for Speckle
Speckle
18
Maybe no incentive for investment / improving quality / service?

Also, I'm not convinced price discrimination is a disadvantage. Why do you think it is? Don't be fooled by the word discrimination. It could even be seen as an advantage.
Original post by eleanorlrh
disadvantages?

This is a 25-mark question, I have these advantages & disadvantages:

Advantages-
- Economies of Scale
- If it's a public service [like water], it saves competitors from spending a lot as there are high fixed costs.
- Government revenue from taxation.
- Supernormal profits go towards research and development.



If it's a monopoly, there wouldn't be competitors.

If it's a nationalised industry, tax revenue would be irrelevant.

Depending on the nature of the good, the research and development might be irrelevant. There might be no reason to do so.

There may be no economies of scale too - there might even be additional infrastructure costs.
There is no way in hell monopolies are good in any sense. Monopolies dont even maximise output as they know they they are the monopsony. Also most monopolies target high profits to yield a higher return for investors (Stakeholders). The supernormal profit which is just profit, goes towards the CEO'S look at many companies who suffer from misallocation of resources as they dont have to product high output. Its more profitable if monopolies produce a little amount.

However there are a few advantages of monopolies.

One of the few advantages is when a new competitor enters the market and the monopoly has to lower the prices (in order to make the barriers of entry higher) to kick out competitors

all i could think of atm, will add when i think of some

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