Why are monopolies bad?I'd like to know why monopolies are detrimental to the economy? Are there any other reasons besides the fact that having no competition leads to poor service, and no innovation?

Asked on by bottlecap

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The two problems that you mention in your explanation are indeed problems with monopolies.  However, they are not the only problems.

First of all, the lack of competition also has one other major drawback.  In addition to leading to poor service and a lack of innovation, it also leads to higher prices and to lower output than customers would happen under a more competitive market structure.

Second, you should note that economists talk about how monopolies lead to a misallocation of resources.  Because of the lack of competition, output is lower.  This means that not as many resources are allocated to this particular sector as there "should" be.  In this way, economists say that monopolies are inefficient in addition to being bad for consumers.

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bottlecap | Student, Grade 11 | eNotes Newbie

Posted on

I see how that would apply to a natural monopoly, but not to government monopolies.

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