Arguments against Monopoly

However monopolies have been accused of the following weaknesses.

• Diseconomies of scale

While the monopolistic firm can grow to large size and exploit economies of scale, there is danger that it eventually suffers from diseconomies of scale.  This will raise its LRAC and hence also raise its price.

• Inefficiency

Since there is no competition, the firm can be inefficient as it has no fear of losing customers to rival firms.

• Lack of innovation

Although the firm is in a better financial position to carry out research and improve its product than a firm in a competitive market, it may NOT actually do so because of the absence of competition.

• Exploitation

Exploitation of consumer is the most notorious practice for which monopolists are known as in over-pricing so as to maximize profits, and price discrimination.

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