Monopolies Are they good - Assignment Example

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A simple definition of a monopoly is an industry where only one company is competing. Competition can decrease prices for consumers because each company wants to try and outdo the other. …
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Monopolies Are they good
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Monopolies – Are they good? A simple definition of a monopoly is an industry where only one company is competing. Competition can decrease prices for consumers because each company wants to try and outdo the other. On the whole, consumers see monopolies as a bad thing because of the belief that they buy out all other small companies. There are instances where a monopoly can actually be a bad thing. This would be in a communist country like North Korea, for example. If consumers are unable to choose from a variety of products, they may have to end up with substandard products. Some monopolies can be detrimental to the economy because the local economy is stifled. Despite all of this, monopolies are good because of economies of scale, greater innovation, and the quality of products on offer. Monopolies are good due to the returns that they can make from economies of scale. Because monopolies can produce a large amount of goods or services, their fixed costs are lower than it would be for a new entrant into the market. If a pen company produced 10,000 pens annually at a total cost of $7,500, then the average cost to make a pen would be 75 cents. Now, if that same firm were to produce 50,000 pens annually at a total cost of $30,000, then the average cost of one pen would only be 60 cents. The more output that a firm makes, the less it takes to make one item. If the pen market was opened up to new competitors, the market share would have to be divided up between all the competing companies. In a market of five firms, instead of one firm producing 50,000 pens, each of the five firms would produce 10,000. The cost to make one pen for each of these firms would increase back to 75 cents. It is for this reason that it is cheaper for one firm to cater to the market rather than a variety of different firms. Because the average cost is cheaper for one firm, consumers are able to take advantage of cheaper prices. Wal-Mart is a great example of a monopoly because they dominate the market so much that they can afford to offer cheap prices. As such, consumers choose to shop there to take advantage of the low costs on offer. The second reason why monopolies are a good thing for the economy is due to the innovation that they bring to the market. Because most monopolies are large global corporations, they make huge profits each year. In order to remain number one in consumers’ minds, these monopolies are able to put back their profits into further advancing their existing products. Apple is a great example of this because they continually bring out new products all the time to meet consumers’ needs. A company such as Apple uses advanced technology in many of its products, and consumers benefit the most out of this arrangement. Because of this, prices can be lowered for consumers because the monopoly is already making huge revenues. Finally, monopolies are able to offer greater quality products because they are able to produce the best products that meet consumers’ needs. Microsoft is a good example of a monopoly that continually improves its product offerings for consumers. This company has been successful due to the high quality and low cost on offer. Even those who are against monopolies would agree that companies like Microsoft and Google do not compromise on quality. There are other companies that attempt to compete against these two corporate technology giants, but consumers will always prefer a company that offers superior quality. Those firms that do not offer high quality products will always struggle because consumers will not feel encouraged to buy from them. In fact, in the United States, many monopolies are not monopolies because they are the only ones authorized to produce a product; it is simply that other firms cannot offer quality products at low prices. If smaller firms tried to compete by lowering their prices to match some of the corporate giants, they would not be able to make a profit because their production costs would be too high. Many of those people who are against monopolies do so simply because they are misled by the media. Monopolies are not all bad; in fact, they can actually increase an economy’s growth by lowering its prices for consumers. The reason why monopolies are good is due to economies of scale, innovative products, and better quality products. Read More
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