Impacts of Monopolies on the Society’s Welfare
Monopoly cannot be sorely described as bad or beneficial. But this whereby a good or service is controlled by one particular seller with no close substitute. It all depends on the role it is playing in social welfare. Usually, it requires government regulation in most cases to make it beneficial and helpful to the members of the Society. Again depending on the type of monopoly, it is possible to tell which is acceptable and which one is not suitable for the welfare of the Society. Therefore, the paper unveils both positive and negative impacts monopolies have on society welfares.
Beginning the discussion, we look at some of the disadvantages of monopoly and to start with we have the price discrimination. It is whereby a firm charges different prices on the same product to different consumers. The negative aspect of this is that the change in prices is not a voluntary thing such that they are willing to pay for the increased priced, but it is usually forced (Accounting, n.p). The same is not suitable for the welfare of the Society.
Secondly monopoly leads to poor quality delivery of services, for example the gourmet food trucks at the initial stages. This comes by the fact that there is no other producer and therefore every customer was forced to take food from the one company. This limits the consumer preference which limits the satisfaction level in general.
Contrarily, to all these disadvantages there are definite elements of it. Monopolies help in provision of public utilities which are the essential services that cannot be produced by different small firms since it would lead to diseconomies of scale. For example, if services such as provision of electricity was to be produced say by four different companies in a city then that would mean that there has to four different power lines in the city. This would be cost-ineffective, and there wouldn’t be the economics of scale to be enjoyed. So on a bright side monopoly saves on cost.
Additionally, monopoly gives a company ability to stay in the market for a long considerable time especially the new business. This is an essential aspect of every business, but it should be regulated, for example, with patent rights. With this, business will come in later and still provide competition without leading to closure of the other since it had established itself.
Competition also enables people to have wide choices thus they can have their preferences. For example, when more food trucks were given licenses prices fell, the quality improved, and people had preferences, and this leads to more satisfaction. This was good for the welfare of the Society in general sine firms enjoyed profits and customers had satisfaction.
Again if the monopoly can be able to segregate its market the different prices wouldn’t be negative to people at such. For example, in the airline industry a person who books a flight earlier would pay less than a client with an urgent meeting say tomorrow. With this both clients are willing to pay the price and therefore this not bad to their welfare since it’s not forced situation. With this, there is more profit, and it’s generally a good aspect in the business, thus to Society (Pettinger, n.p).
In conclusion, monopoly is terrible when not controlled by the relevant agencies, which are the government. This because it leads to high prices being charged and price discrimination. But it’s also a good thing when it’s the right thing to have, for example in the provision of essential services as we have seen. This because such goods to provide them need the economics of scale and monopoly guarantees that. Therefore, the discussion cannot lie on one side; somewhat, it contradicts itself. It’s both wrong and a good thing.
References
Accounting Latest. “Disadvantages Of An Economic Monopoly | Everything You Wanted To Know About Accounting, Finance, Money & Tax!”. Latestaccounting.Com, 2013, https://latestaccounting.com/business/disadvantages-of-an-economic-monopoly.
Pettinger,T.,AdvantagesAndDisadvantagesOfMonopolies-EconomicsHelp. https://www.economicshelp.org/blog/265/economics/are-monopolies-always-bad