If monopolization of the economy continues, what would be its final result?
Posted by admin in Finance Monday, 24 January 2011 10:11 2 Comments
If there are only a few monopolies left in each industry, then even they can merge and there will be ONE BIG MONOPOLY left in the whole economy. This would be the equivalent of centralized planning and the end of capitalism.
Or am I wrong? If I am wrong, what factors can stop the process of monopolization of the economy at a convenient piont?
BRAWNDO: the thirst mutilator
“its got elecrolytes” “its what plants crave”
Well, the disadvantages of a monopoly is that there is a possibility of higher cost curves due to lack of competition. Monopoly will take away consumer sovereignty since there’s only one producer. Also, there will unequal distribution of income.
On the other hand, monopoly can enjoy economies of scale since there is no duplication of services allowing it to produce at a large scale, thus lowering its average cost. Besides, with supernormal profit, there is a possibility of lower cost curves due to more research and development and more investment, rather than a company which makes normal profit. With innovation, comes new products which benefits the consumers.
For an industry which requires large capital and high expenditure, it is necessary to monopolize the industry, such as the utility industry.
Govt will can control monopolization by imposing regulations such as the merger legislation which prevents companies from merging. There is also the anti predatory pricing of which it can drive new companies away.