Are Monopolies Always Harmful

Using the data in the extracts and your knowledge, assess the view that 'monopoly is always harmful'. 25 marks.

When a firm has monopoly power, they have a degree of price setting power based on its market share. In this situation, the business entity would act as the price maker rather than the price taker. In some cases, such as with the UK Post Office, a market will have a pure monopoly, where there is only one firm in the entire market. As with anything, there are positives and negatives to monopolies, though in some cases it may be viewed that the cons outweigh the pros, resulting in a monopoly always being harmful. However, this may not be the case, and monopolies, in many instances, could perhaps prove more efficient and practical for consumers and suppliers alike.
        In accordance with the statement, having a monopoly in a market can cause massive issues for both consumers and other smaller firms through their price-setting power. When a firm has a strong monopoly, they are able to set the price of their goods or services higher than those under a competitive market to maximise their potential profit and enter the realm of supernormal profit, as shown in the graph to the right. This negatively impacts customers in that they are paying far higher than they should be for their goods and services and have little option but to continue doing so due to the lack of other companies with sufficient alternative goods in the market. As stated in extract C, the “UK supermarket industry has been engaged in a price war”, causing big shops to slash prices in an effort to attract a larger customer base. Within a monopoly, there would be no viable way for firms to compete on even grounds, meaning no cuts in prices.[pic 1]

        Another argument for the harmfulness of monopolies is that a monopoly can cause a stagnation in the development of technology. Advances in technology can not only improve the quality of products, but also reduce the costs of production. Innovation for a monopolist is not nearly as necessary as for a highly competitive firm, and may even work out to be a bad business strategy if gone ahead with. Any research by these monopolists is focused largely on ways to supress new and potentially competitive technologies rather than innovation. This all leads up to a serious disadvantage as innovation is a major factor in the growth of an economy as a whole. As briefly mentioned in extract B, advances in technology now makes “shopping easier than ever”, thanks largely to the competitive technology market.

        One more case for monopolies being harmful is the lower level of the quality of goods and services produced. Consumers wind up getting a far worse deal for a high-priced, low-quality item than if they were under a competitive market, as monopolies have very little incentive to up the quality of their goods, with no real firm to compete with. If theirs is the only product being sold in a single market, consumers would have little choice but to continue buying from that one firm, especially if is a normal good with little to no substitute goods.

        On the other hand, monopolies are not always harmful, depending on the depth of them. First, it is important to recognize that high market concentration held by one firm does not necessarily imply an absence of competition. That firm could possibly just be providing better quality products/services more efficiently to the market. In cases like these, the profits from the monopoly may all go towards more research into improving the product, such as Apple, as they still have a reason to remain competitive, and they will innovate at a faster rate than small firms would. Many firms who hold monopolistic patents are credited with advancing leading-edge technologies and pushing the technology frontier forward for everyone. This in turn should lower costs for consumers, improve product quality, and create wholly new ideas, products, and processes.