Monday 22 July 2013

Monopoly And Its Advantage/Disadvantage:

Monopoly

Monopoly is a market situaltion of a single seller or producer. As my previous topic was 
Perfect Compitition And Imperfect Compition‏ So you may see this by clicking on this topic. Today my topic is on monopoly that what is monopoly? What is its Advantage and Disadvantage from economy point of view. These all questions are resolved below:

A monopoly is simply a market with only one seller and no close substitutes for that seller's product. Technically, the term "monopoly" is supposed to refer to the market itself, but it's become common for the single seller in the market to also be referred to as a monopoly (rather than as having a monopoly on a market). It's also fairly common for the single seller in a market to be referred to as a monopolist.

Monopolies arise because of barriers to entry that inhibit other companies from entering the market and exerting competitive pressure on the monopolist. These barriers to entry exist in multiple forms, so there are a number of specific reasons that monopolies can exist. 

Advantages and Disadvantages of Monopoly

Monopoly


Advantages of Monopoly


There are some advantage of monopoly are as below:
1. Monopoly avoids duplication and hence wastage of resources.
2. A monopoly enjoys economics 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 lot 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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