According to general equilibrium economics, a free mar𓃲ket is an efficient way to distribute goods and services, while a monopoly is inefficient. The inefficient distribution of goods and services is, by definition, a market failure.

In a free market, the prices of goods and services are determine𒁃d by free and open competition between companies and individuals. Producers increase or decrease production and alter their products according to consumer demand, while consumers vote with their money, forcing 🐈producers to adapt to their needs and desires.

How Do Monopolies Control the Market?

In a monopoly, a single supplier controls the entire supply of a good or service. This gives the supplier excess control over the good or service and takes power away from consumers. If the product is a necessary commodity (e.g., gas, water, food, shelter, internet connection), then demand for the 🥂product can remain relatively stable no matter how high (or low) its price goes. As a result, the supplier can artificially restrict the supply of the product, thus cre🍰ating scarcity and raising prices for consumers.

In the real world, the con🌌cern is that a monopoly will take advantage of its position to force consumers to pay higher prices than if the market was in equilibrium.

Can Monopolies Disrupt Perfect Competition?

In theoretical economics, underprovision, or scarcity, fails to measure up against the concept of 澳洲幸运5官方开奖结果体彩网:perfect competition, which might be described as a balance of power between buyer and seller. Competitive pressure keeps prices "normal," with consu🍌mer demand for the product or service establishing that norm. The demand curve is elastic, rising or falling in response to price.

General equilibrium economics is a 20th-century 澳洲幸运5官方开奖结果体彩网:neoclassical theory that describes a specific—although admittedly unrealistic—notion of perfectly competitℱive markets.

According to this theory, market failure results when power is concentrated in too few hands. A monopoly is a single provider of a product or service. A monopsony is a single buyer of a product or service. A cartelized 澳洲幸运5官方开奖结果体彩网:oligopoly consists of a few large providers agreeing not to compete directly. A 澳洲幸运5官方开奖结果体彩网:natural monopoly is an unusual cost structure that leads to efficient control by a si𒈔ngle entity.

In the real world, all of these variations are broadly covered by the concept of monopoly. The concern is that a monopoly will take advantage of its position to force consumers to pay prices that are higher than they would be in a market that is in 澳洲幸运5官方开奖结果体彩网:equilibrium.

What Are Some Opposing Views of Monopolies?

Many economists 澳洲幸运5官方开奖结果体彩网:challenge the theoretical validity of general equilibrium economics be💙cause of the highly unrealistic assumptions made in perfect competition models. Some of these criticisms also extend to its modern adapꦚtation, dynamic stochastic general equilibrium.

澳洲幸运5官方开奖结果体彩网:Milton Friedman, 澳洲幸运5官方开奖结果体彩网:Joseph Schumpeter, Mark Hendrickson, and other economists have suggested that the only monopolies that cause♋ market failure are government-protected.

The Legal Monopoly

A 澳洲幸运5官方开奖♛结果体彩网:poli💎tical or legal monopoly, on the other hand, can🉐 charge monopoly prices because the state has erected barriers against competition. This form of monopoly was the basis of the mercantilist economic system in the 16th and 17th centuries.

Modern examples of such monopolies exist to some extent in the 澳洲幸运5官方开奖结果体彩网:utilities and education sectors.

The Bottom Line

Monopolies contribute to 澳洲幸运5官方开奖结果体彩网:market failure because they limit efficiency, innovation, and healthy competition. In an efficient market, prices are controlled by all players in the market because supply and demand swing more toward equilibrium. A monop💙oly can control the supply of a good or service, thus artificially increasing or decreasing prices to suit its needs rather than contributing to the well-being of the market it is part of.