Effect of Monopolies on the Economy

Essay by xgbgo99College, UndergraduateA-, December 2009

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A monopoly is exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. A firm is the only provider of a product so there is no competition and it can set prices to whatever they wish. This is known as market power. The firm is able to raise the price of a good and not lose any sales as a result. This stems from exclusive control of important inputs, patents and copyrights, government licenses, economies of scale, or network economies. A famous example of a monopoly would be AT&T which was the only option for telecommunications until it was broken up in 1982. Today monopolies are very rare in the United States. Besides public utility services it is very rare to find monopolies that exist. Public utility services can remain monopolies because it is hard to use less electricity, water, etc, so in those areas the firm is able to clean up.

In contrast, areas such as clothing, people would buy less if products became too expensive.

There are a number of ways to classify monopolies. There are pure monopolies, in which a single firm is the only seller of a unique product. Back in the late 1990's Pokemon cards had become very popular. Since there was no alternative to these cards that every kid had to get their hands on they were very expensive. Pokemon cards were selling for $8 - $10 for a six card pack. These cards cost no more to produce than normal playing cards which are sold for $1 or $2. Probably the most common form of monopolies are oligopolies. In cases such as these, sales of a product are dominated by a small number of relatively large sellers who are able to collectively...