MONOPOLY is BAD for the CONSUMERS?

Question

Please state the 'for' and 'against' points

On why monopoly harms consumers AND why monopoly might benefit the consumers

Thanks

Answer 1

Yes they are, look at utilities (gas,water,electric) They are bleeding consumers dry, they have PAC that lobby politicians to raise your utilities frequently.

Answer 2

Monopoly benefits the consumers because of innovation. Joseph Schumpeter emphasised that entrepreneurs are enticed by supernormal profits to exploit knowledge that can be used for the good of society, e.g. Microsoft.

However, monopolies are inefficient because the supernormal profits earned by the monopoly firm are not needed to keep them in business. Output is kept low, and prices are kept high for a product produced by a monopoly firm. Consumer surplus is minimised as a result.

Answer 3

Monopolies are not necessarily bad.  One common argument suggesting they are "bad" is that they make extra profits.   And, while it is true that they make extra profit, that is really a normative statements.  Normative statement are out of the realm of positive economics, and thus, have no real meaning in this argument.  A monopoly can be inefficient if it not able to perfectly price discriminate.  If they can't price discriminate, some consumer surplus will be lost without a gain to producer surplus because the producer can't gain a surplus without selling.  So, if the monopoly can't price discriminate it follows that there will necessarily be dead weightloss.  The reason they can be considered "bad" is because they don't produce the same amount as a competitive firm would.  Loss production is a loss for society and hence the aforementioned deadweight loss.

But for the consumer as a whole, monopolies must exist, at least for a point in time.  When the first hamburger joint came out, it was a monopoly.  It would be fallacious to argue that this was bad for consumers.  On the contrary, it was rather good for consumers and society as a whole an innovation was sparked because of the success of this particular business.

Answer 4

Mr Economist answered the question very well.  Some additional points are:

Benefits: in some cases a monopoly is more efficient than competitive markets, because the sheer amount of investment required to provide services.  The marginal cost is low, but setting up the infrastructure to provide it is so expensive that if two firms were to provide it, it would be more expensive.  This is called a natural monopoly.

Harms: the quality of the product tends to suffer under a monopoly.  Since a monopolist has no competition, they have no incentive to make their product better, or indeed, keep it from breaking after a couple years.  One aspect that tends to suffer in particular is customer service.