Monopoly When Studying

Monopoly When Studying

Monopoly When studying monopoly, or rather near-monopoly or imperfect competition, economists make the simplifying assumption that the monopolist or the producer in an imperfectly competitive market will produce such an output as will maximize his profits. Thus output, other things (e.g. costs) being equal, tends to be smaller than it would be in a more competitive market. The more imperfect markets are, therefore, the smaller the output. Critics of a competitive economy point out that it does not yield the best results in terms of economic welfare because it is imperfectly competitive. Some economists reply that an imperfectly competitive system falls short of an imagined ideal a perfectly competitive economy which is impossible to achieve in real life under any system. To judge an imperfectly competitive economy, it is necessary first to make allowance for the degree of imperfection that is created artificially by the state to isolate the form monopoly would take if only its unavoidable elements, i.e. due to large-scale production, consumers preferences, etc. remained. This can then be compared with the practicable alternative under some other system (one in which property is not privately owned and in which production is conducted in response not to consumers' preferences in free markets but to orders from 'planners' with authority to enforce their plans). The difficulty about such a comparison is that all kinds of other considerations must be taken into account not least the political one that a 'planned' economy cannot allow people as consumers freedom of choice of purchases and as workers freedom of occupation. A comparison in purely economic terms is incomplete.

Further, the simplifying assumption that near-monopolists in an imperfect market maximize their profits is not always true in practice. The larger the degree of monopoly, the higher the price has to be in order to maximize profits, but the high price may attract new competitors, so it may remain below the optimum' level. To maximize profits, price (or quality) has to be adjusted whenever demand changes, better value having to be given when demand falls away and less when it increases. But constant adjustment in commodities or services may disturb production, so for sudden or frequent changes in demand the price may again remain below the 'optimum' level Near-monopolists are often sensitive to public opinion and publicity, particularly when there is a. general sentiment against monopoly and in favour of competition, as there has been in Great Britain since World War IL The consumer has also developed a new weapon advisory services which enable him to compare products with more knowledge and which make it more difficult to ask higher prices unless they are accompanied by better value.

Some economists argue that the extent of monopoly and the abuses of imperfect competition have been over-emphasized by the critics of a competitive economy who have taken too partial and too static a view: too partial because they have not allowed sufficiently for competition between the products of near-monopolists, and too static because they have looked at a 'still' of the economy and not a moving picture in which monopolies are sooner or later broken up by new competition.

Monopoly power may be exercised by a single thin, by a group of firms, by a trade union or any other association of firms or people. (The test is whether, and how far, it can affect price by withholding supply.) There is a clear distinction between restrictive practices employed by a group to convert an otherwise competitive situation into a monopoly and an individual monopoly or near-monopoly situation arising from the economies of large-scale production, low costs and therefore low prices that no other producer can outbid.

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