Question

Make an argument as to why Society should discourage the formation of monopolies.

Answer 1

Monopoly : Monopoly is a market situation in which there is only one seller or producer of a product for which there is no close substitutes. The whole supply of a particular product is controlled by one firm. The firm has total control over the price also. The firm is the price maker. The firm fixes the price in such a manner that it'll maximise the firms profit. Under monopoly market there is no distinction between firm and the industry. In monopoly market there is absence of competition. The firm as well as the industry are the same in the monopoly market.

Arguements to support why society should discourage the formation of monopolies :

(1) Monopoly promotes inefficiecy : The monopoly is mainly objected because it causes economic inefficiency. In monopoly the output produced is low and the price is high.

(2) Unfaiir prices : Because of the strong financial resources and powerful positions they are able to bridge legislation they could easily create laws that support them.

(3) Lack of innovation : It is argued that lack of competition tends to retard technological advance. The monopoly firm become comfortable, earning profit so he does not work hard for product improvement, advanced technology to promote efficiency, etc.

(4) Monopoly results in concentration of economic power : Monopoly leads to concentration of economic power because the monopolistic controls substantial quantities of inputs and outputs.

(5) It creates inflation : Monopoly firm creates inflation rate. When high price is set on goods and commodities, this will raise the costs for the consumers.

(6) Absense of substitute products : There won't be any substitute products for the customers. They have to get satisfied with products currently there in the market.