Monopoly Power Iminds by Iminds 9781921798924, 1921798920 instant download after payment.

Monopoly power is the ability of the dominant participant in a market to control prices. It is a sign of market failure and a major factor in antitrust investigations. Capitalist economic markets rely on competition to operate efficiently and to protect consumer welfare. When a single company controls the prices within a market, the economic welfare of the consumer is often at stake.

An ideal market in economics occurs when there is perfect competition. In this scenario, there are no or few barriers to market entry and the goods being sold are largely the same. There are also many buyers and sellers who share knowledge of the price, quality and availability of these goods. Under these conditions, all market participants would act in ways beneficial to the other.  The market would function efficiently, promoting economic growth and ensuring consumer welfare.

The antithesis of this idea, however, is a monopoly. A monopoly occurs when there is only one seller in a market. This dominant company may offer a product that has no substitutes, or entry to the market may be impossible. This situation would create a large amount of power for this company. In serving its own interests, the monopoly would not act in ways beneficial to buyers. An absolute monopoly is as rare as a state of perfect competition, though this is not to suggest that either does not occur.

There are cases where natural monopolies exist. These are where entry to a market is prohibitively expensive. This is often the case with some utilities, which require an enormous amount of capital to develop the required infrastructure. A frequently use example of this is the distribution of electricity. In such cases, a natural monopoly is the most efficient means of providing this service.