Monopolies may create a transfer of wealth from consumers to producers. So what? Society does not...

Monopolies may create a transfer of wealth from consumers to producers. So what? Society does not become poorer because of that. Then, what is the problem with a monopoly from an economic point of view? Would you say that every monopoly is not competitive? Why yes or why not?

Provide examples. What would be the best indicator of a competitive industry? What are the main sources of market power?

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Any help is much appreciated, thank you!

Expert Solution

Monopolies are firms who dominate the market. Either a pure monopoly with 100% market share or a firm with monopoly power (more than 25%) A monopoly tends to set higher prices than a competitive market leading to lower consumer surplus. However, on the other hand, monopolies can benefit from economies of scale leading to lower average costs, which can, in theory, be passed on to consumers.

Example

Market power is an organization's ability to control the price of a product by manipulating its supply, its demand, or both. Market power is also referred to as economic strength. Companies that possess market power are referred to as price makers because they are able to determine the price for a product or service, even as they maintain market share.

An example of market power is Apple Inc. in the smartphone market. Although Apple cannot completely control the market, its iPhone product has a substantial amount of market share and customer loyalty, so it has the ability to affect overall pricing in the smartphone market.

Rahul Sunny answered 1 year ago

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