Question

Discuss the idea that “Monopolies are bad for social welfare, compared to perfect competition”. Do you agree or disagree? Why? Are there times when your answer would be different? Given that for an industry to be perfectly competitive, the product must be identical across all providers, are they bad for private welfare? As you consider the perfectly competitive market structure versus monopolistic competition and oligopoly, would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. (Remember in perfectly competitive industries they achieve both allocative and productive efficiency, while neither is achieved in the other market structures). Or as a alternative question, what is the right amount of variety? Can there be too many varieties of shoes, for example? What happens when society decides there has been too much of a product?

How might monopolistic competition or oligopoly improve these situations from a consumer perspective? From a business/firm perspective?

Answer 1

Answer: I strongly agree upon this because it includes price discrimination among customers and high prices could be charged hence monopoly will badly effect social welfare. Answer would be different in absence of price bias.

Yes, identical product will be bad for private welfare as buyer and seller having perfect knowledge about identical product hence it will lead to normal profits . Supernormal profits are not possible. Hence it is bad for private welfare.

Monopolistic and oligopoly market will be providing differential products i.e huge variety of products and provides product at reasonable prices and attractive offers. And from firm point of view this will result in good amount of profits and will avoid cut throat comptition and hence will ensure long term profit generation for firms.