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Monopolies or Perfect Competition

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Introduction

What is better for the consumer: A Monopoly, or Perfect Competition? A Monopoly is a market structure in which only one firm controls the entire market without any close substitutes. In contrast, Perfect Competition is a market structure in which there are thousands of buyers and sellers where all firms are price takers and always make normal profit in the long run. In a monopoly however, because it has barriers to entry they have no competition for their product and firms tend to gain large abnormal profits in the long run which is bad for the consumer, but good for the firm. These barriers to entry are that they have very high Abnormal Profit is when any profit is gained over and above the normal profit level. ...read more.

Middle

Despite some of the disadvantages to consumers when it comes to a monopoly consumers can still profit from the market's gain. This is because consumers can invest in monopolies and when the market is doing well so are it's investors. Typically, for a consumer, a market with perfect competition would be better. This is because if one of the many firms in that market raise their prices the consumer can simply switch to another firm selling those same goods at a lower price because in Perfect Competition there is no brand loyalty. This also explains why firms in Perfect Competition have perfectly elastic demand. One more plus side to Perfect Competition for consumers is that when demand goes up supply goes up accordingly due to the fact that there are no barriers to entry so more firms simply join the market this insures that prices will remain low. ...read more.

Conclusion

On top of all that buyers have "perfect knowledge." Perfect Knowledge means that buyers have full knowledge about the products and prices and in monopolies they do not. Another negative to Perfect Competition is the possible negative externalities such as pollution. Also, because they only make normal profits, this is insufficient for consumers to invest. In conclusion, Perfect Competition benefits consumers more due to their low prices and the perfect knowledge that the consumers have. Also, they are economically efficient because the competition between firms ensures that firms attempt to minimize their costs and move towards productive efficiency (producing at the lowest level of cost that it can). Overall, firms in perfect competition are always responsive to the needs of consumers because they have to be. Whereas monopolies do not, and they tend to use the lack of knowledge of consumers to their advantage in order to make abnormal profits. ...read more.

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