While monopolies can often charge more than a non-monopolistic firm could, they do not necessarily charge the highest price possible. This is for a number of reasons. First of all, charging a price that is too high for consumers will possibly backfire. Consumers will likely choose not to buy the product or service at all. Overcharging can lead to a reduction in market demand. It is true that a monopoly has a lot of leeway in how much it can charge for its product. However, consumer demand for that product will put limitations on how much it can charge. Consumers are never compelled to purchase a product.
Second of all, overcharging could result in the introduction of a new competitive firm that will try to undercut the monopoly's prices. The last thing that a monopoly wants is to create competition and lose their monopolistic position.
There can also be pressure and regulations from the government to not overcharge. In several instances, the government has the authority to place...
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