four reasons why monopolies is bad
1. Since monopolies are the only provider, they can set pretty much any price they choose. This is known as price-fixing. They can pretty much do this, regardless of demand, because they know the consumer has no choice. This is especially true for goods and services where there is inelastic demand, where people don't have a lot of flexibility. An example of this is gasoline. There are choices, such as mass transit or bicycles, but they aren't an easy substitute in many areas.
2. Not only can monopolies raise prices, they can also supply inferior products. This has happened in some urban areas, where grocery stores know that the poor urban dweller has fewer alternatives.
3. Monopolies are also bad for an economy because the manufacturer has no incentive to innovate, and provide "new and improved" products. This used to be true of cable companies. It was expensive to lay new cable, so residents had to accept the cable company's service and prices. However, disruptive technology is the worst enemy of monopolies. Dish TV, iPads, and Netflix has created a new type of entertainment service that doesn't rely on cable to deliver movies and TV programming. The same thing happened with land-line telephones.
4. They can create inflation. Since they can set any price they want, they will raise costs to consumers. This is known as cost-push inflation. A good example of how this works is OPEC, or the Organization of Petroleum Exporting Countries. The twelve oil exporting countries in OPEC now control the price of 46% of the oil produced in the world. However, this is not a true monopoly, but more of a cartel. First, most of the oil is produced by one country, Saudi Arabia. It has a far greater ability to affect the price by itself by raising or lowering output. Second, the price set by OPEC must be agreed to by all its members. Even if they agree to it, some may try to undercut the price to gain a little extra market share. It is difficult to enforce the OPEC price. However, the countries within OPEC still make more per barrel of oil than they did before OPEC.
