In the jungle there is a lion who is called the king of the jungle because lion has the power to hunt any animal, in the same way when it comes to products there is a monopoly. It is a form of market structure where there is one seller and there are many buyers for the product which in turn give seller opportunity to decide the price, in simple words in case of monopoly it is the seller who is the king or price maker and price of product is not decided by equilibrium between demand and supply for the product. Given below are the various advantages and disadvantages of monopoly –
Advantages of Monopoly
- The first and foremost advantage of monopoly is that since there is one single seller in the market it leads to economics of scale because all supply is concentrated at one place and that leads to big scale production which in turn leads to lower cost per unit for the seller and if the seller passes it to the consumer that consumer will also benefit from the lower price of product being available for consumption.
- Another advantage of monopoly is that since there is no competition sellers do not resort to unfair promotional tactics like their product is better than others or claiming incorrect features in their product or giving discounts after increasing the price of product and so on.
- Since there are abnormal profits in case of monopolies seller can invest that amount in research and development of product so that customers can get better a quality product at reduced price leading to enhanced consumer surplus and satisfaction.
Disadvantages of Monopoly
- The biggest disadvantage of monopoly is that seller is the price maker which gives seller undue advantage of charging exorbitant or unfair price for the product leading to exploitation of consumers as they have no option but to buy it from seller as there is no competitor of the seller in monopoly market.
- Another disadvantage of monopoly is that firm may resort to discrimination pricing that is charging different prices from different customers which will lead to dissatisfaction among consumers as same product will be priced differently for different markets or consumers; hence there is no transparency in case of monopoly.
- In case of monopolies in the absence of any competition there is tendency of the seller to be complacent which in turn leads to seller selling low quality products and providing poor customer service as customer has no choice because there are no substitutes due to lack of competition.
As one can see from the above that monopoly has both advantages and disadvantages, however majority of the governments as well as consumers all over the world don’t prefer pure this market structure because most of the times it leads to exploitation of consumers by monopolist.