Question

Explain what might cause a government to allow monopoly, except in cases on public utilities, given the adverse effect of such market to the consumers and the public in general.

Answer 1

Fallowing are cause of government to allow monopoly

Monopolies are form who dominate the market.either a pure Monopoly with 100% market share for a firm with Monopoly power. Government allows it because of it benefited economy sometimes.

Monopoly increase innovation:- without patents and Monopoly power drug companies would be unwilling to invest so much in drug research. The Monopoly power of patent provides and incentive for firms to develop new technology and knowledge that can benefit society. Also monopolies make supernormal profit and this supernormal profit can be used to fund investment which lead to improved technology and dynamic efficiency. Firms with Monopoly power may be the most efficient and dynamic. Monopoly power by being better than their rivals.

In an industry with high fixed cost a single firm can gain lower long run average cost through exploiting economies of scale.this is particularly important for firms operating in a natural monopoly.

A domestic firm may have Monopoly power in the domestic country but face effective competition in global markets.way to market increasingly globalised it may be necessary for a firm to have a domestic Monopoly in order to be competitive internationally.

A firm may become a Monopoly through being efficient and dynamic. Monopoly is thus sign of success not efficiency. Google has gained Monopoly power through being regarded as the best form for search engine Apple has a degree of monopoly power through successful innovation and being regarded as the best producer of digital goods. And because of that monopoly can be successful firm.

In some areas the most efficient number of firms is one. If a city deregulate its bus travel then rival bus companies may compete for profitable peak hours services. This may lead to increase congestion as several buses turn off at once.it is more efficient to have a Monopoly and avoid this inefficient duplication of services. And this is cause Monopoly avoid the duplication of services.

Because of above benefits government allow monopoly except in case on public utilities.