The lack of competition means that they can reduce the quality of their goods to make more profit, or limit the amount of research and development because consumers have nowhere else to go. Lack of incentive to innovate: Big monopolies can become lazy. Therefore, precious resources are wasted. The government can regulate monopolies through: Price capping limiting price increases. For example, monopolies have the market power to set prices higher than in competitive markets. The monopoly also has no incentive to cut costs lower and improve the production process, because no competition exists. The government may wish to regulate monopolies to protect the interests of consumers. Productive and cost inefficiencies: The monopoly restricts its output so it may not necessarily be producing at the cost minimising level of production. Without competition, there exists no other viable option to the consumer in many cases. Lack of available substitutes: Consumers in society suffer because the monopoly is in control of what is made in the market. It limits the amount of competition available. Limit Pricing: This is when monopoly firms purpose reduce prices to stop new firmsfrom entering the market. For some products, the government erects barriers to entry by prohibiting or limiting competition. In the long-term, it makes more profit than before. The monopoly firm may lose some money in the short-term, but at the same time it eliminates its competition from the market. Because the monopoly is really large, it has a cost advantage over small firms due to economies of scale. Predatory Pricing: This is when the monopoly firm purposely undercuts the price of their products in order to extinguish competition from other firms within the market. But monopolies also can cost society in other ways: This firm faces no competition due to which it. We know that there is a deadweight loss to society due to the monopoly's higher than competitive pricing and restricted output. A monopoly is a market where one firm (or manufacturer) is the sole supplier of certain goods or services.
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