Monopoly and Public Policy
7 Pages Posted: 12 Oct 2014
Date Written: 2014
Abstract
A monopolist, the sole producer of a good or a service that has no close substitutes, can establish its prices itself. Such prices are higher than those that would result from free competition, but they do not rise without any limit. There is a restraint on market power: consumer demand decreases if a price increases. A monopolist can choose, for the same level of profits, to produce a large quantity of goods to be sold at low prices or a small quantity of goods to be sold at high prices. Monopolies tend to pose severe economic problems, and in this article I address some of the challenges posed by monopoly to public policy.
Keywords: monopoly, market power, public policy
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