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output can be limited and even when there output isnt limited they
are rarely productive. This is then believed to have adverse effects
on the performance of an economy. The limitation of output is
because it allows the monopoly is exploit the basic principles of
economics: the less of something there is the more valuable it is.
This means that monopolies can drive up the price of a product
massively in order to maximize profits when the product could in
fact be sold much cheaper if it was produced at the rate it could be.
Monopolies also are rarely productive again due to lack of
competition as there is no incentive to innovate production to
increase efficiency as there is simply no competition and it will have
very little or no impact on sales. This therefore has negative affects
for consumers as they are being charged a price much higher than a
competitive market would demand for it.
The presence of a monopolist also strains competition from taking
place due to its barriers of entry. Certain barriers to entry such as
government licenses are granted to particular monopolists. This
prevents other firms from entering the market and prevents
competition. Barriers to entry prevents other firms from entering the
market and therefore reduces competition that would force the
monopolist to become innovative and productive, both positives to
the consumer. This also very bad for other firms wanting to enter
the market as this prevents them and it is also very bad for
consumers as it prevents competition and thus prevents both the
quality of the product and the price from changing due to
competition.
Monopolies can also be very bad for other firms because of
economies of scale and power over suppliers. Monopolies are often
so large that they can buy huge amounts of materials and resources
at once leading to discounts and better deals that other firms simply
cant afford and costs that the smaller firm will get but the monopoly
will not. They also put in such large orders that they can actually get
exclusive access to a resource or material supplied by a company.
Especially if this resource is scares and rare this can be used as a
barrier to other firms to enter the market as the monopoly controls
that resource that is required to go into competition with them.
In conclusion monopolies have adverse affects on the economy and
are bad for both consumers and producers.