revision+video+on+market+failure

media type="file" key="market failure revision.swf" width="520" height="520" align="center" Additional Revision Notes on Monopolies. A pure monopolist is a single seller of a product in a given market or industry. In simple terms this means the firm has a market share of 100%. The working definition of a monopolistic market relates to any firm with greater than 25% of the industries' total sales. Even a firm with only 25% of the market may have some degree of monopoly power Although generalisations are often misleading, monopolies are often viewed negatively in that when compared with a competitive environment they: Generally producers hold more power the greater the monopoly power. The greater the competition the greater the consumer sovereignty. It should be noted that monopolies can’t charge any price, but the greater the monopoly power the more inelastic demand is, and the more ability the monopoly has to increase price. If prices are higher than they would be in a competitive market (leading to monopoly profits) then market failure is said to exist and as a result, there is a case for the government to intervene in monopoly markets. They may fine monopolies if they abuse their powers or regulate them, so they must provide a high quality service at a maximum price.
 * Charge higher prices
 * Reduce output
 * Limit choice
 * Are less efficient as they are not subject to competitive forces.

So given the problems with Monopolies, why not ban them altogether? The problem with this is that often monopolies can be beneficial to society, and therefore each case has to be looked at separately and judged on its own merits.

Economic Benefits of Monopoly
Although economists express concern about the negative consequences of a firm having a monopoly position, this market power can bring advantages both to the firms themselves and also to consumers. Large firms enjoying a high level of profits can use some of these to fund high-cost capital investment spending and research and development projects. The positive spill-over effects of research can be seen in a faster pace of innovation and the development of improved products for consumers. This is particularly the case in industries such as telecommunications and pharmaceuticals. Because monopoly producers are often supplying goods and services on a large scale, they may be better placed to take advantage of economies of scale – leading to a fall in the average total costs of production. These reductions in costs will lead to an increase in monopoly profits but some of the gains in productive efficiency might be passed onto consumers in the form of lower prices. Economies of scale provide potential gains in economic welfare for both producers and consumers.
 * Research and Development:
 * Economies of Scale