Why is a monopoly a bad thing?

Answer 1

Answer 1
Monopoly means having the most control of anything, anyone having this, has too much control over the even distribution of goods, causing an imbalance of wealth, which is what is occurring in the world at this very moment. This is what happened in the great depression, only now it is more global.

Answer 2
Monopolies are generally seen as "bad" for three reasons. Firstly, with only one manufacturer, the monopolist can set a higher price for the consumer than would be typical of a more competitive economy. Secondly, with no competitor on the market, the quality of the monopolist's product often suffers. (Why make something perfect if you're not competing anyone?) Finally, monopolists often price-discriminate which means that they will offer a higher price to people they expect will pay more for roughly the same service. (Similar to a student movie ticket vs. a normal movie ticket.)

However, in certain cases where fixed costs are immense and marginal costs flatline or decrease, like utilities, it often makes more sense to use a regulated monopoly than to force unnatural competition.

Answer 2

Whether it's a "bad thing" or not depends on your perspective, and on the characteristics of the monopoly itself.

To a free-market economist, a monopoly, in most cases, is a huge violation of the "perfect competition model", which (if it existed) would result in the optimal (most efficient) allocation of resources to maximize the satisfaction of all players in the market.

Specifically, one of the elements of the perfect competition model is a large number of sellers, and a monopoly is the complete opposite of that, as there is only ONE seller. When there is only one seller, that seller determines the price of the good. Buyers have to accept that price. Of course, unless there's a Dictatorship (or a mandatory health care bill, but I'm repeating myself), buyers always have the option of not buying, but if they buy at all, they will have to pay the price that the seller is charging. The seller will then set a higher price than it would possible for him to charge in a perfectly competitive market, and will therefore make more in profits. But also, less of the product will be sold. Under a monopoly situation, the price is higher, and the quantity sold lower, than in the perfectly competitive model. Therefore, resources are allocated in a way that is not the most efficient allocation possible. That's why monopolies are "bad". They're not "evil" (at least not necessarily), they're just economically inefficient. (Note that economic inefficiency is not in any way related to technological inefficiency.)

There is a special case of a monopoly called a "price discriminating monopoly". Such an entity, because of the way a market is structured, is able to sell each unit of product at the maximum price that any single buyer is willing to pay for it. In a simple monopoly, everyone pays the same price. But say your market allows you to sell one unit at a time. Say at an auction. You put the first unit up for bid, and, eventually, the one buyer willing to pay more than anyone else "wins" the right to purchase the product at that price. Then you begin the bidding on the second unit, and the person willing to pay the SECOND highest amount "wins" that bid. And so on. Of course, the price of each successive unit goes down, but you don't care because, except for the last unit auctioned off, every unit you sold was sold for MORE than you would have gotten under a simple monopoly, and so your total profit is more even than the simple monopoly. And, of course, the outcome is even farther away from the optimal allocation of resources that would have been achieved under perfect competition.

There are some cases, however, where a monopoly is the best thing for a market. For example - household electrical service. Once one company runs electrical cable throughout a given area, if another company tried to compete with that first company, it would have to run ANOTHER set of cable throughout the same area. This would, effectively, double the cost of providing electrical service to a given home in that area. So, it makes more sense to just let one of the two companies maintain a monopoly. Nevertheless, you still have to watch out for abuse of this monopoly power, which is why local governments usually set up watchdog organizations for public utilities like electricity, water, sewage, telephone, natural gas, etc. In fact, in many cases, particularly water and sewage, the local governments themselves provide the service.

Then there's the monopoly that the public school system has on education. This is a completely different animal, in a lot of ways, from any other kind of monopoly. First of all, there are private schools galore out there. You don't HAVE to send your children to a public school if you don't want to - you can always send them to a private school of your choice, or even home-school them. But you have no choice on whether to PAY for the public school. You're going to pay the same amount to the public school system whether your children go to public school or not. Indeed, you're going to pay the same amount even if you don't have any children at all. See, the public school system is paid for by tax dollars. Usually property taxes. If you don't own real estate, you don't pay any property tax at all (at least not directly, though if you're renting a home, rest assured that your landlord has increased your rent enough to pay his own property taxes). But the amount of property tax you pay is proportional to the amount (or more likely, value) of land that you own. It is in no way proportional to the number of school-aged children you have, let alone how many of them you have chosen to enroll in public school as opposed to private school. To me, this is a supremely unfair system. One family might own 10,000 acres and a million-dollar mansion, but have no children at all, and through property taxes, they're paying $50,000 a year to fund the local public school system. Meanwhile, another family could own a quarter-acre and a $50,000-home, and be raising 4 children, and pay $100 a year in property taxes.

So, even though you have the option of sending your children to private school, if you own property, you don't have the option of refusing to PAY for private school, so this is worse even than a private monopoly.

Also, with the public school system monopoly, their is no link between quality of service provided and funding. You get the same revenue from property taxes whether you do a good job of teaching kids or not. And so there's no INCENTIVE for doing a good job.

And, worse still, teaching children gives teachers with a political bent, and with an obvious vested interest in preserving the public school system, the opportunity to INDOCTRINATE young people into liberal political and social beliefs.

In the case of the public school system, a monopoly, most definitely, is a VERY bad thing.

Answer 3

A monopoly by definition is a single source for a good. The monopolies typically have barriers to entry which prevent other people from supplying the same good or service. These can be resource based (a raw material which few have access too), skills based (a good only one company knows how to make effectively), there can be cost barriers (it may take too much money and time for someone to build factors or acquire technology), and there may also be legislated or political barriers to entry (the government or the law has legislated that only one person can build a given good).

In general the harm a monopoly can cause is a problem of single source. The monopoly is generally in position in which it can dictate how much of a good will be produced and what price it will charge without market influences.

In a non-monopoly situation producers and buyers set the price through supply and demand pressures. Companies enter the market when profits are to be made and leave if their are none. Consumers also using their ability to select products as a way to reward those who make good products at a good price by purchasing their products and punish those who make lower quality products or charge to much by not buying their goods.

A monopoly insulated the company from these market pressures and does not allow customers an alternate source of goods.

Answer 4

A "monopoly" means that there is only one firm in the entire industry. Therefore, there is no competition because there are less than two parties involved.

Answer 5

I would geuss because they would have more locations therefore get more buisness