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

Why Is Monopolies Harmful and How Can Regulation Ameliorate These Harmful set up?Why is monopoly harmful? How can regulation ameliorate these harmful effects?What problems confront the regulators?In couch to deduce that a monopoly is harmful, there must(prenominal) be another marketsystem which is preferable to monopoly so as to offer greater benefits to the human beings. A monopoly can therefore be comp atomic number 18d to unblemished 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 harms, high simoleons and insensitivityto the public. Some governments therefore, in the unprovoked of these protests,advocate policies relating to monopolies, in launch to regulate their power in privilege of the publics interest.There are several reasons why monopolies may be against the p ublic interest. Itis claimed that monopolies produce at a lower level output and constitute a higherprice than chthonic perfect competition in both the short firing and the long run.Consider the diagram above. fall apart that this monopolist attempts to maximiseprofits. Equating MC=MR yields an output of Qm and a price of Pm. If the same patience 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 then be lower than under monopoly and output would be greater.Consumers obviously benefit if this is the campaign since P=MC implies P=Marginalutility so that consumers are maximising their total utility(Under monopoly PMCand therefore arguably, not the optimum).In the long run under monopoly, supernormal profits persist. Under perfectcompetition drop off freedom of entry leads to the elimination of these profitsand forces firms to produce at the asshole of the long run average cost curve.Under monopoly however, there 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 most efficient techniques. Under perfectcompetition, in order for firms to survive, the most efficient techniques mustbe adopted or create whenever possible or else the firm which fails to do sowill be forced to shutdown. This argument leads to the conclusion thatmonopolies have higher cost curves than firms under perfect competition(Assuming