If monopolies are so inefficient, why do they still exist?

There are a few reasons for which monopolies are, in certain cases, both desirable and beneficial. The first case to consider is that of a natural monopoly, which benefits from Economies of Scale (show the long run average cost on a diagram). In this case, it is positive for the society, because if the quantity demanded by the market was produced by more firms, consumers would have to pay a higher price, which is a problem especially in the case of commodities such as electricity.

When it comes to industries that need to invest in R&D, monopolies are protected with patents (example of a pharmaceutical firm and diagram). That happens because consumers need these new products, such as in the case of the pharmaceuticals, or these products would improve the society (tech firms). Namely, some industries need dynamic efficiency, which cannot be found in more competitive market structures.

Answered by Anna Z. Economics tutor

2108 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

Explain two possible government responses to the abuse of monopoly power.


How does the imposition of a tariff on the market for cigarettes in Italy affect its consumers and producers?


Why is a perfectly competitive market always in break-even state in the Long Run?


What are the distinctive characteristics of a perfectly competitive market?


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2024

Terms & Conditions|Privacy Policy
Cookie Preferences