Effects of monopoly power in the economy

This means that at the end of the day the market forces will not affect the price of a good or service. Some of such firms include Microsoft, Dee Beers, and Windows among others. It has been seen that whenever other competitor companies try to penetrate the market, the monopolistic company will have a great competitive advantage over the new companies. Monopoly can be as a result of some acts of vertical integration or horizontal integration. When a company gains monopoly power, it will take control over the supply chain ranging from production to retail of the goods. Section two of this essay will discuss the sources of monopoly power and the consequences of monopoly power which brings about deadweight loss.

This section will further go deep to discuss the various ways through which government intervention will be required giving real-life examples. Section three will give a conclusion on the reason as to why the government should regulate monopolies and to some degree so as to be fair to the industries. Monopoly power and Deadweight Loss 2. Monopoly The elasticity of the demand curves in a given market will always how much monopoly power a firm has in a given market (Amir et al. Deadweight Loss Deadweight loss is the imbalance between supply and demand in the market as a result of monopoly (Zhang and Wei, 2015). When a company is the sole provider of a certain good, they can increase the prices but keep the supply low.

This is always not Pareto-optimal. In simple terms, the deadweight loss is a gain that did not reach the consumer or the producer. Deadweight loss can be attributed as a result of taxes or subsidies, price ceilings and price floors and market failure in general (Amir et al. This is because being the only service provider the firm does not face any competition from would have been competitors. The firm enjoys bragging rights and will not need to come up with new products so as to meet the competition that would have been present in a free market. Occasionally in a free market, firms will be motivated to come up with new products so as to have a competitive advantage over their rivals in providing products that offer more utility to the consumers (Amir et al.

When a company keeps raising the prices of a given product but does not improve the quality of the product customers are likely expected to quit buying the product. For example, a cell phone company that is the only producer will keep making the same phones even if they are not meeting the current changes in the world and still raise their price. This being said, sometimes monopolies are important in ensuring the consistent delivery of some essential goods which have a high cost of production (Varian, 2014). These may include products like water and electricity which may not be easy to set up and maintain form every firm. However, the disadvantages of monopoly are many compared to the advantages. This, therefore, calls for the need for the government to make sure that it regulates the monopolies but not eliminates them so as to make sure that there is a balance on both sides of the issue.