A monopoly is a firm, corporation, conglomerate, corporation, or legal entity that is usually the sole provider of a good, product, or service in a given market, giving it a huge advantage competitive with other businesses or companies attempting to provide a similar product or service. Monopolies are considered such if they require large amounts of capital, need to operate under large economies of scale, have a governmental mandate to ensure their sole existence, and offer goods, products and services only 'others cannot replace. Some companies become monopolies by controlling the entire supply chain from production to retail; this is called vertical integration. Other companies buy out their competitors until they are the only ones, in other words horizontal integration. Read on to learn more about how monopolies can negatively affect the economy so that before you find yourself in a legal bind by the forces of monopoly and having to ask what is an antitrust lawsuit , you will know your enemy!
The neutralization of competitors is essential to the establishment of monopolies. As soon as the competitors are done and dusted off, the monopolies have the freedom to raise prices as much as they want. If a new kid tries to enter the Monopoly's playground, the Monopoly can play economic games and cut prices until the new kid is kicked out. Monopolies can recoup any losses with higher prices once all competitors have been driven out. Here are some other ways monopolies can hurt the market economy:
Monopolies can set the prices they want, and they will increase the costs for consumers in order to increase their profits. They create cost inflation. The Organization of the Petroleum Exporting Countries (OPEC) and its thirteen oil exporting countries and their power to raise or lower oil prices is an example of a monopoly capable of creating cost inflation.
Monopolies can set prices whenever they want. They can do this regardless of consumer demand because they know there's not much consumers can do to change the status quo. Pricing mostly occurs when the demand for goods, products, and services is inelastic (when people don't have much flexibility regarding purchase prices).
Not only can monopolies raise prices, but they can also provide cheaper and lower quality goods, products and services. A monopoly that provides such things is remarkably annoying and potentially damaging to a community that has no choice but to buy and use them.
Monopolies lose any incentive to innovate or provide "new and improved" goods, products and services in the absence of competition. For example, cable companies and their technology remained stagnant until streaming services began to take over the television industry.
A monopoly is created when a firm or corporation effectively has exclusive rights to price, distribute, and market a good, product, or service. The existence of a monopoly depends on the nature of its activities and trade. Monopolies have so much market power that it is usually impossible for competing firms to enter the market. They are formed when one or more companies or entities have taken control of most business in an economic sector. A monopoly can wreak havoc in the economy through cost inflation, price fixing, supply of poor quality goods or products and services, and non-innovation. All of this leads to disgruntled consumers and market players begging to be left out of a game they had no choice but to play.
