Benefits of Monopoly for the Stakeholders - Essay Example

Download file to see previous pages Monopoly is a market structure where a firm controls the industry in regards to output and prices and there are no close substitutes to the products. Monopolistic competition is a market structure where there are many buyers and sellers who trade in a range of prices. This is because the sellers can differentiate their offers to different customers (Orbanes, 2007). Monopoly is not the best market structure to be considered in the current world of business.
A monopoly has different benefits to the stakeholders such as the government, consumers, producers and businesses as a whole. Monopoly benefits to the producers and businesses are that it increases normal profits to abnormal profits. A monopoly produces at a lower output and sells at high prices. This reduces the marginal cost of the producer which increases the profits to supernormal profits. The businesses also benefit from a monopoly in that they produce at large scale which leads to economies of scale. The economies of scale will lead to a reduction in average cost, which will lead to, increase in profits. The economies of scale have potential gain in welfare to the producer. The large scale production will reduce the firm’s costs, which will result, to benefits in the long run. The shareholders also benefit from monopoly through receiving dividends, which result from, supernormal profits. The firm benefit in terms of control meaning the firm controls the entire market which means it is the sole decision maker in the industry. The firm benefit for being the dominant one in the industry in that it decides on the prices of the products. The firms in the industry are price takers (Robinson, 1943). ...Download file to see next pagesRead More