A monopoly is a business that is the only provider of a specific good or service on the market. It creates a tremendously competitive atmosphere for other businesses to enter the market. Monopolies, if they wish so, can lower the prices and squeeze their opponents out of the competition. Apart from that, monopolies often restrict free trade and prevent the market from setting prices. This causes the following economic problems:
1. Inflation
Monopolies can change the prices as they wish. It means that they can increase prices to gain more profit. That is one of the inflation types - cost-push inflation.
2.Price Fixing
As was mentioned before, monopolies are enabled to change prices as they choose. The worst thing is that they can do it regardless of the demand. Monopolies know that consumers do not have that much choice when there is only one dominant business on the market providing specific goods or services. A good example is a gas. You will most likely not wait until you like the price before you fill up the tank of your car.
3. Declining product quality
Besides raising prices, monopolies can also supply inferior products. For instance, if a grocery store in a poor neighborhood knows that its residents do not have that many alternatives, it will not care that much about the quality of goods produced.
4. Loss of innovation
A lack of competition in the market leads to the loss of innovation. Businesses do not aim to produce new and improved goods or services. Monopolies invest less money into their products due to the lack of competition. In this setting, consumers are getting inferior products and are less satisfied.
.png)
Comments