Question

In a free market, capitalist economy, competition is a fundamental component of the economic process.

Arguably, competition insures the best goods and services at the best prices.

Discuss how monopolies and other antitrust violations undermine the ability to compete.

Answer 1

Competition is good for customers as they get best goods and services at best price. If there are anti competitive agreements or monopolies in Market . A monopoly's potential to raise prices indefinitely is its most critical detriment to consumers. Because it has no industry competition, a monopoly's price is the market price and demand is market demand. ... As the sole supplier, a monopoly can also refuse to serve customers.For instance, a firm with deep pockets can set prices below costs and absorb losses until competitors can no longer survive. Then, once the competition is eliminated, the surviving firm can raise prices high enough to more than cover the losses it took while establishing its now-dominant market position (under antitrust regulation, such tactics are prohibited).

One case where scrutiny is certainly needed is one economists call a "natural monopolies." In these cases, companies do not have to act strategically to eliminate the competition. It happens naturally, often because of economies of scale that are still in effect even after the entirety of market demand has been satisfied.

Because consumers of a monopoly product pay a higher price than they would have under a competitive market, there is a transfer of income from the consumers to the owners of the monopoly. In general, owners of businesses, including stockholders, tend to be wealthier than the buyers of a monopoly product, so this causes a transfer of income from poorer people to wealthier people, creating a greater inequity than would otherwise be the case.

The other great disadvantage of a monopoly is that it often does not seek to improve its products more than it has to, since there is no incentive to do so. In fact, there could be incentive not to do so.

When an industry has just a few dominant firms, or a single dominant firm, market power can be significant. But when the number of companies is sufficiently large, the power of any one is considerably muted.

The industry with large number of firms provide varieties to customers. Consumers certainly seem to have a taste for variety, so this benefit must be weighed.

Thus Competition  encourages enterprise and efficiency, creates a wider choice for consumers and helps reduce prices and improve quality.Competition also encourages businesses to improve the quality of goods and services they sell – to attract more customers and expand marketshare.