Introduction
Multiple companies producing a relatively tiny portion of the market’s overall production can be found in a competitive market. As a result, no single company substantially influences the market price. In this scenario, businesses compete with one another by lowering their prices to get clients, and they base their production choices on the marginal cost of production.
A monopolist, conversely, dominates the market since it is the only supplier of a specific good or service. The monopolist has complete control over the price and output of the product because there is no rivalry. The news article demonstrates that monopolies benefit from inflation and can even increase this advantage by reducing the number of monopolistic firms.
Profit Maximization Through Reduced Output in Monopoly
The article discusses how corporate concentration and a lack of competition give corporations much power over pricing, which drives consumer prices. Airlines, pharmaceuticals, and food processing are just a few of the industries recognized as having a problem with the concentration of power in a small number of dominating businesses. The article states that “…corporations have the power to pass those wage increases – along with record profit margins – on to consumers in the form of higher prices” (Reich, 2023, 19). According to this quotation, businesses can use their pricing power to pass on pay hikes and increased costs to customers when there is little to no competition. When there are only a few dominant players on the market and a monopolistic situation, these businesses can raise prices without worrying about losing customers to competitors.
Conclusion
In conclusion, raising prices while retaining high-profit margins is essential for monopolistic enterprises. They can boost their profits at the expense of consumers, who will ultimately pay higher prices by taking advantage of their market dominance and lack of competition. Decreasing the number of companies involved in the monopolistic market can mean sharing this profit with fewer firms. This means that fewer monopolistic firms have no collective action problems in controlling the market and benefiting from it.
References
Reich, R. (2023). The US should break up monopolies – not punish working Americans for rising prices. The Guardian. Web.