Why does economists consider competion as efficient but that under monopoly as reducing social welfare?

Question

Why does economists consider competion as efficient but that under monopoly as reducing social welfare?

Answer 1

Competition encourages businesses to produce better services and products at lower prices. Monopoly is the absence of competition. It allows a business to dictate prices and quality to the consumer. High prices and low quality are economically inefficient.

This is an important distinction rarely fully recognised. Free enterprise capitalism and monopoly capitalism are not the same system - they are opposite types of capitalism. Monoploy leads to control of society by an elite minority, so it is actually the same as socialism (total centralised governement - control by an elite minority).

Socialism is monopoly. It's opposite is small government. Monopoly capitalism is the same as socialism. It's opposite of free market. Small government (absence of economic control) is necessary for free market.

Socialism (big government) and monopolism (big business) also assist one another. Government and business both like to expand. Big business promotes big government and big government fabours big business.

Monopoly does not arise from a free market either. It arises with the growth and assistance (favouritism of the rich) of government. This is historically how it always happens.

Marx recognised that free enterprise and monoploy were opposites, but wrongly stated that monopoly arises naturally from a free market. (Dialectical materialism.)

Ironically, a major feature of big government is "social welfare" programs, which don't actually deliver real social welfare in the real meaning of the word. It just promises it, or props up a lack of real social welfare with quick fix solutions.

Answer 2

Monopoly reduces welfare because now the SELLER controls the ENTIRE market and can charge whatever price it wants.

The 2nd faulter that EVERYONE fails to mention in how it hurts social welfare is because:

With no competition it gives the producer NO INCENTIVE for innovation because they have no one to compete their products with. This HURTS the consumer because the consumer won't see an IMPROVED version unless the seller feels it can generate more profits by improving upon the existing product.

Note: Some people on here DON'T know what they are talking about. Hope this helps you bud!

-Jerry, University of South Florida, Economics Major

Answer 3

Okay imagine it this way:

Say you lived on a small island, and you owned a chocolate shop, and it was the only chocolate shop on the island. This would mean you have a monopoly of chocolate, because people can only buy it from you. Chocolate, as everyone knows, is really really nice, so the price would have to be very very high before people stopped buying it. This means you could set the price very high and people would still buy your chocolate because they have no choice. There is no where else to get it from. Then they have less money - reducing social welfare.

However, if other people open up chocolate shops, you will have to compete with them. You will need to lower your prices and come up with new flavours and get your ingredients cheaper in order to keep prices low and customers happy. This will make you more efficient.

Therefore, competition encourages efficiency.

A better example would probably be you owning the only water pump, or something that people really can't do without, so they'd pay whatever the price.

But chocolate's more fun, don't you think?

Answer 4

you need to add a few more words there, pal, to make that a complete sentence.  Also, check your grammer.

Answer 5

competition is efficient cuz customers gets to choose.  in monopoly, ppl have can not choose, so the vendors can sell the product at a high price if they want.  if the products r not elastic, ppl will b forced to buy that product

Answer 6

Well monopoly is the absence of competition. Monopolistic firms can maximize profits by producing less of the good than the amount demanded- causing the price to be higher. If the firm was facing competition if would produce more of the good and the price would be lower.

Answer 7

Under perfect competition neither consumers nor producers have market power (they can't influence the price) so the producers' decision boils down to only choosing the level of output that maximizes their profits. And conditions are such that they maximize profit at a higher output than if they where monopolists.

On the other hand, monopolist have market power so they decide over two variables: price and output. In this case, they can make more profits by charging a higher price and producing a lower output.

This is why monopolies reduce social welfare because by limiting their output they are preventing some to have access to a scarce good and making it inaccessible for others to consume the good because of its high price, compared to perfect competition where prices are lower and output is larger, which would be more efficient than a monopoly because no resources are being squandered or under-used.

Answer 8

well we dont need to go into how demand and supply is deduced but demand is inelastic so maximising m.r. does not mean m.r.=m.c.

except a natural monopoly, where avg.costs r decresing, m.c.<m.r., there is inefficiency or output not getting produced enogh so demand suffers at market price vector, even in natural monopoly this unfullfilled demand does not clear the market the loss to society is underproduction which can b seen in any form(say unemployment or extra public exp)

and since no one gains or no product generated this is a dead weight loss!

perfect competition is able to satisfy all demand worth m.c. and all producers who can produce at that level min.

second law guarentees(shown analutically by arrow and stiglitz-say's law, which is nowdays not essential to use) that  competition (need only satisfy certain condn). generates social welfare think of it as all those who can pay for it do get it, so welfare is maximised.

again this maixisation is closely assosciated with pareto optimality not being able to make anybody better off without making anybody worse off

in xams only draw demand and supply diag to explain.