Advantages of Monopoly

Monopolies do not constantly lead to increased costs, lower outputs and well-being losses. In fact, monopolies can frequently lead to boosts in society’s well-being as large monopolists gain from economies of scale in production and circulation. These falls in costs can frequently be handed down to customers in the type of lower priced products. We will now discuss quickly a few of the prospective advantages of monopolistic market structures.

Lower production expenses and increased welfare

Under monopoly, higher output and standardization can result in lower costs.

This can lead to economies of scale and scope, which can be passed on to customers in the type of lower priced items.

Natural monopolies

It could be argued that some industries are more effectively organized as monopolies. Industries such as water, gas, electrical power and communications are frequently described as ‘natural monopolies’. A natural monopoly occurs when the ratio of the minimum efficient scale to industry size is so large that industries can just support one efficient company.

Get quality help now
Bella Hamilton
Verified writer

Proficient in: Economics

5 (234)

“ Very organized ,I enjoyed and Loved every bit of our professional interaction ”

+84 relevant experts are online
Hire writer

In natural monopolies, fixed costs form a big part of total expenses.

If the monopoly remains in private hands, the monopolist makes the most of revenues where marginal expenses equivalent minimal earnings, and produces at output level and charges cost. The monopolist makes excess revenues equivalent to the shaded location. If the company were forced to charge a price that would prevail under competition, it would set rate equivalent to minimal costs and produce at output level. For instance, suppose we have a public utility that supplies a particular part of the country through a network of pipes.

Get to Know The Price Estimate For Your Paper
Number of pages
Email Invalid email

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

"You must agree to out terms of services and privacy policy"
Check writers' offers

You won’t be charged yet!

It would mishandle for a new firm to enter the marketplace, established its own system of pipelines and then start supplying a sector of the marketplace. This is due to the fact that the level of output the company produces would yield insufficient earnings to cover overall costs. This competitors would therefore result in inefficient duplication (and competition) of systems.

Technical progress

Large monopoly profits may be used to finance research and development programmes. Monopoly profits are the reward for successful innovations. These innovations bring welfare gains to society in the form of new products and processes. Furthermore, these monopoly profits will not persist as there will eventually be entry by imitators or patents will lapse, which will eventually dissipate these profits. These assertions have been tested empirically for manufacturing and service industries in a number of countries.

Avoids wasteful forms of competition

Monopolies may avoid wasteful forms of competition such as advertising, which are prevalent features of many oligopolistic market structures. Given that monopolists to some extent have a captive market, there is little incentive for monopolies to advertise. In addition, monopolists may also generate a degree of price stability. They may be expert in accurately gauging the level of demand and supply. A monopolist may also be better placed to endure any downturn in the business cycle.



Cite this page

Advantages of Monopoly. (2016, Mar 20). Retrieved from

Advantages of Monopoly

👋 Hi! I’m your smart assistant Amy!

Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.

get help with your assignment