5.5

• monopoly advantages

  • economies of scale
  • Dynamic efficiency
  • Cross-subsidisation
  • International competitiveness
• monopoly advantages: economies of scale

  • large monopoles can lower average costs by producing in bulk (e.g buying materials cheaper, using advanced tech)
  • can lead to lower prices - IF saving are passed on
• monopoly advantages: dynamic efficiency

  • monopolies earn supernormal profits, which can fund research, innovation and better products
• monopoly advantages: cross-subsidisation

  • profits from one area can fund services/products that wouldn’t be profitable alone
• monopoly advantages: international competitiveness

  • a big domestic monopoly may become a global brand, increasing exports and national income
• monopoly disadvantages

  • higher prices/consumer exploitation
  • allocative inefficiency
  • productive inefficiency
  • X-inefficiency
  • lack of choice
• monopoly disadvantages: higher prices/consumer exploitation

  • monopoles may charge prices above the marginal cost (P>MC) because theres no competition
• monopoly disadvantages: allocative inefficiency

  • since P>MC, the firm is not producing what society really wants - its under-producing to push prices up
• monopoly disadvantages: productive inefficiency

  • monopolies might not produce at lowest cost (not at min AC) - no pressure to be efficient
• monopoly disadvantages: X-inefficiency

  • without rivals, monopolies can get complacent, wasting resources and not keeping costs down
• monopoly disadvantages: lack of choice

  • consumers are stuck with one option - no variety, no switching