Advantages and disadvantages of monopoly

A seller selling an exclusive and special product tends to dominate the market. If there is no close substitute, he decides to set the price for the product, as there is no close competition. This market structure is called monopoly. There are monopolies that are government owned  Railways, the rail transportation that consumers are compelled to use for want of an alternative. There is government sanctioned monopolies too. 

The large-scale infrastructure required to start a business incurs high costs, which in the end can gain from lower average costs thereby increasing efficiency. This is an advantage of monopoly. Thus, the high profit that these monopolies accrue can be well utilized for funding research and innovation. New technologies can be developed and knowledge sought to serve the society. The monopoly powers remain dynamic and efficient, as they are better than their rivals are. The points mentioned above reveals the benefits of monopoly.

The higher price quoted by the monopoly power leaves the customers with no cheaper alternatives. This causes a reduction in the number of consumers who can afford to buy the products. For others it remains unaffordable. This affects the consumer surplus. This can also lead to complacency that can affect their efficiency. Without any competition, the monopolies can get away with high profit by putting less effort.

This highhandedness can reflect in dealing with their suppliers and workers. They may pay a low price to the suppliers of the products and may lower the wages of their workers. Gaining political power by the monopolies is a major threat as they have the ability to influence the society in whichever way they want.

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