The effects of monopoly on market are as follows:
Merits of Monopoly:
Following are the few merits of monopoly:
Due to no competition in market, monopolist has full control on the supply of product. So supply of the good in market can be easily adjusted according to the demand of good. This equilibrium between supply and demand of the product helps to keep price of good stable.
Welfare of Government:
As monopolist produces large number of products which helps the government to increase its revenue due to sales tax, income tax, etc.
No Need of Advertisement:
As there is no substitute of the product, so there is no need of spending money for the advertisement of good or product.
Demerits of Monopoly:
Following are few demerits of monopoly:
No choice for Consumer:
Due to monopoly there is no other substitute of such product. Consumers have no other option but to purchase such product.
Discourages Entry of New Firms:
Due to no competition monopolist has very strong position in market, this situation discourage the entry of new firms or companies in market.
No New Inventions:
Due to no competition, monopolist feels very secure in market. That’s why monopolist has no interest in new invention or techniques for production of the product.
Unequal Distribution of Wealth:
Usually monopolist earns supernormal profit. This situation causes a big gap between poor and rich one.