Negative Effects of a Monopoly - Essay Example

Negative Effects of a Monopoly A monopoly can be described as a phenomenon in which a big firm becomes the sole provider of a service or product, orwhen a certain company becomes so dominant in the market that it gets hard for other companies to compete with it. Several socioeconomic and political circumstances are responsible for the creation of a monopoly. Often, corrupt governments in a bureaucratic system take hold of the industries and own big companies, thus driving other competitors out of business.

A monopoly is detrimental for the economy of a country in that it reduces purchasing power of the consumers, paves way for lower quality services or products, and creates unemployment. A monopoly reduces consumers’ purchasing power through increase in price of services or products. Being the only provider of service or product, the company in power sets the rate at its own will. An example of the is the Pfizer Company, the maker of the Viagra pill, that charged customers a lot because no other pill could be compared to Viagra in effect (Stewart).

Consumers are thus forced to pay a higher price for a service or product that is not actually worth that price. People are hence left with no choice but to either pay the exaggerated price or find alternatives to the wanted service or product. Eventually, such a system leads to a decline in the standard of living and wellbeing of the society as a whole. A monopoly equips the sole vendor to reduce the quality of service or product (“Monopoly: A Brief”). As there is no competitor in the market, the sole provider knows that consumers have no option but to purchase the service or product even with a lower quality.

The sole provider does not feel obliged to invest much in the business in terms of resources and accordingly, the end product does not measure up to the required standard of quality. Consumers become helpless and have to endorse the low-quality service or product as that is the best they can get in such circumstances. A monopoly creates unemployment (Babayan). As more and more businesses are driven out of the market because of the power of the sole provider, people employed in those businesses become jobless.

They either have to regain skills related to another profession or somehow become part of the sole provider. Either way, these jobless people have to go through a lot of emotional, psychological, and financial problems to achieve their destination. Many people with higher skills, hence, have to work at much lower salaries than what would be justified considering their level of education and skills. To conclude, a monopoly has unfavorable consequences for the economy as prices of the service or product are established by one vendor.

Monopoly virtually does not leave any room for free trade. Consumers are left with no option but to pay the price demanded by the only provider of the service or product. The sole provider also tends to lower the quality of service or product without being afraid of getting driven out of business. Works Cited: Babayan, Nelly. “Monopolies: cause for poverty and unemployment.” 29 Nov. 2013. Web. 20 Nov. 2014. . “Monopoly: A Brief Introduction.” 1 Dec. 2006. Web. 20 Nov. 2014. . Stewart, Tom.

“How is the economy affected by monopolies?” 7 Jan. 2014. Web. 20 Nov. 2014. .