A monopoly exists when there is only one firm in the industry

In an industry with only one monopoly firm rather than lots of small competitive firms (perfect competition), three socially harmful things occur:

The monopoly firm produces less output than firms in a competitive industry.

The monopoly firm sells its output at a higher price than if the industry was competitive.

The monopoly firm’s output is produced less efficiently and at a higher cost than the output produced by firms in a competitive industry

👉‍Disadvantage to consumers

Higher prices

Firms with monopoly power can set higher prices than in a competitive market. Monopolists are also able to use price discrimination. This is the practice of charging different prices to different customers for essentially the same product.

Less choice

Abuse of monopoly power could also involve setting higher prices or limiting output and lead to less choice for consumers.

Disadvantage to other producers

Artificial barriers

A monopoly can also set artificial barriers to prevent other producers from entering the market. For example, it can limit production and access to technical developments. There may also be an unfair treatment of competitors.

Preferential treatment

The firm may give preferential treatment to certain parties, placing others at a disadvantage. This does not benefit other producers.