Advantages and Disadvantages of a Monopoly Market
A monopoly market exists when there is a huge number of buyers but a small or very limited number of sellers in the market. Like any other market structure, a monopoly market has its advantages and disadvantages to both the buyer and the seller.
In this article, I will put into perspective the pros and cons of a market experiencing a monopoly.
- Stability of prices: In a monopoly market, the prices are most of the time stable. This happens because there is only one firm involved in the market that sets the prices if and when it feels like. In other types of market structures, prices are not stable and tend to be elastic as a result of the competition that exists, but this isn’t the case in a monopoly market as there is little or no competition at all.
- Source of revenue for the government: The government gets revenue in the form of taxation from monopoly firms.
- Massive profits: Due to the absence of competitors, which leads to a high number of sales, monopoly firms tend to receive super-profits from their operations. The massive profits realized may be used in such things as launching other products, carrying out research and development, among many other things that may be beneficial to the firm.
- Monopoly firms offer some services effectively and efficiently.
- Exploitation of consumers: A monopoly market is best known for consumer exploitation. There are indeed no competing products, and as a result, the consumer gets a raw deal in terms of quantity, quality, and pricing. The firm may find it easy to produce inferior or substandard goods if it wishes because at the end of the day, they know very well that the items will be purchased as there are no competing products for the already available market.
- Dissatisfied consumers: Consumers get a raw deal from a monopoly market because quality will be compromised. Therefore it is not a wonder to see very dissatisfied consumers who often complain about the firm’s products.
- Higher prices: No competition in the market means the absence of such things as price wars that may have benefited the consumer, and as a result of this monopoly, firms tend to charge higher prices on goods and services hence inconveniencing the buyer.
- Price discrimination: Monopoly firms are also sometimes known for practicing price discrimination, where they charge different prices on the same product for different consumers.
- Inferior goods and services: Competition is minimal or totally absent, and as such, the monopoly firm may willingly produce inferior goods and services because, after all, they know the goods will not fail to sell.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.