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The Absence of Competition and Price Discrimination in the Market - Research Paper Example

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The paper describes one of the losses to society as a result of monopoly versus perfect competition is limited output. Because of its market dominance, a firm in a monopolistic marketplace has the exclusive rights to raise prices. Society has no alternative but to buy high-cost products…
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The Absence of Competition and Price Discrimination in the Market
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Discuss the losses to society as a result of monopoly versus perfect competition using the ideas of the cost curves, relative prices and quantities, and consumer surplus.
A monopoly is a market structure where there is only one supplier of a particular product and the sole price maker (Samuelson & Marks, 320). This market is typified by the absence of competition, price discrimination, economic barriers and lack of substitute commodities. In contrast, perfect competition is a market structure involving several suppliers of similar commodities. In this marketplace, there is no barrier of entry and all participants have perfect information of market prices.
One of the losses to society as a result of monopoly versus perfect competition is limited output and high prices. Because of its market dominance, a firm in a monopolistic marketplace has the exclusive rights to raise prices. Consequently, when it does so, the society has no alternative but to buy the high cost products. In contrast, in perfect competition, if one business raises prices the society can just move to the next competitor for a lower price. Thus, the society gets better prices (Samuelson & Marks, 326).
The losses to society can further be explained in terms of supply and cost curves. In a perfect competition, prices and the amount of goods produced are arrived at by looking at the market demand and supply curves. Accordingly, the society is assured of competitive prices, which necessarily lead to minimum prices. In a monopoly, the supply curve is hardly there. The amount of output does not determine the prices. Whether the sole firm produces less or more, it can still maximize the prices because the competitive level is restricted. Hence, in a monopoly, firms maximize their profits by raising prices without any added benefit to the society (Samuelson & Marks, 327). In addition, in a monopoly, the sole firm produces less in order to increase price, consequently exploiting the society.
Finally, the loss to society as a result of monopoly versus perfect competition is the reduction in the consumer surplus. Under monopoly, because of raised prices firms earn much more than what consumers gain from them. As a result, the reduction in consumer surplus leads to a reduction in consumer social welfare (Samuelson & Marks, 328).

Work Cited
Samuelson, William F., & Marks, Stephen G. Managerial Economics. Massachusetts, MA: John Wiley & Sons, Inc., 2012. Accessed on 02/10/2014. Web link: https://www.sendspace.com/file/qgpjji Read More
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