In a previous topic in this unit, we have already learned the characteristics of a monopoly. Now, let us look at the advantages and disadvantages of a monopoly firm.
Advantages of monopoly
1. Monopoly avoids duplication and hence avoids wastage of resources. (We have to understand that duplicate and fake products are a real problem in many countries).
2. A monopoly enjoys economies of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.
3. Due to the fact that monopolies make lots of profits, it can be used for research and development and to maintain their status as a monopoly.
4. Monopolies may use price discrimination which benefits the economically weaker sections of the society.
5. Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition.
6. Source of revenue for the government- the government gets revenue in form of taxation from monopoly firms.
Disadvantages of monopoly
1. Poor level of service.
2. No consumer sovereignty. A monopoly market is best known for consumer exploitation. There are indeed no competing products and as a result the consumer gets a raw deal in terms of quantity, quality and pricing.
3. Consumers may be charged high prices for low quality of goods and services.
4. Lack of competition may lead to low quality and out dated goods and services.
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Go to the next unit: Role of government in an economy