MONOPOLY

Monopoly: a firm which dominates the market, or as the power to be a price maker in the market.

Monopolistic behaviour can lead to an inefficient allocation of resources because of a lack of competitive pressures:

higher prices than under competitive pressures (allocative inefficiency)
reduced choice for consumers
reduced quality output
higher costs (productive inefficiency)
less pressure to innovate
generation of abnormal profits 

Monopolies also can lead to an improvement in economic welfare:

Economies of scale which generate lower costs (productive efficiency)
lower costs which lead to lower output
dynamic efficiency gains through R&D spending

Government intervention is needed to ensure that monopoly power is channeled into benefits for the economy rather than the producer.

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