how does a company(monopoly) use its monopoly power to exploit consumers?

Question

Does anyone do economics? HELP- atleast 5 ways

Answer 1

A monopoly doesn't have any power as it uses monopoly money. They control the media. Control prices. Control production. Control their image. Buy their way out of law suits. Influence government. Manipulate stock prices. Sell bad ideas and products through advertising dollars. Push out competition and small business that may have better quality, lower prices and more selection/options. Stifle innovation and progress to insure a need for their product. Well that's a couple anyway.

Answer 2

Monopolies have the ability to inflate prices by producing at a level in which marginal cost = marginal revenue, but charging at a price equal to demand (I'm sure there's a wiki site so you can get a graph, just wiki monopoly or monopolist firm). So, in short, they are price makers (they choose the price whereas perfectly competative firms are "price takers" - the market price is chosen by supply/demand equilibrium).

A monopoly can create artifical shortages to inflate prices. (ie: OPEC reducing oil extraction to make prices higher...OPEC isn't a "monopoly" it just exudes monopolistic properties, they're a "cartel").

Inefficiency - in a perfectly competative market, firms are driven towards efficiency through competition, a monopoly doesn't have these forces working on it - so they can operate inefficiently without pressure to become more efficient.

Limits consumer choice - by restricting the number of firms, the monopoly restricts consumer choice...and economics taught me that consumers like choice so they can maximize utility and make rational decisions.

Distorts prices! - Prices reflect supply demand equilibriums, so an inflated price leads to price distortion which means that consumers cannot make rational decisions and thus, we have marketplace inefficiency.

Answer 3

Monopoly do exist in some countries specially 3rd world countries. the number one culprit are gov'ts. anyway, a monopoly can dictate prices simply because you have no other choice but to get from them.

Answer 4

Government.