Question

Explain reasons how a company could become a monopoly. Do monopoly firms offer advantages or disadvantages?

Answer 1

Following factors can lead to monopoly:

• Huge investment requirement in market such as Telecommunications.
• Sometimes government also create monopoly by restricting entry of other firms.
• Technological development and innovation by firm also might lead to monopoly power in market.
• Patent and copy right create monopoly in market.

Usually, monopoly market does not offer benefits consumers. it tends to charge higher price and reduces output. Thus, consumer would be worseoff. it is productively inefficient ones.

But monopoly market is dynamically efficient. it will induce investment in innovation and research. Firm will make investment in innovation to maintain its status over the long run.