Homework on Feb 19, 2008 Positive and negative effects of monopoly

Most of the time, monopoly brings negative effects. First, monopolies tend to become less efficient and innovative over time because they do not have to be efficient or innovative to compete in the marketplace. Hence, the technology advancement is comparatively slow when one company controls a particular market. Second, monopolies generally overcharge the end consumers because there is no alternative on the market and companies are always greedy. Third, consumers have no place to complain if they are not satisfied with the products or services since those monopolies most often ignore these voices and do nothing. Most of monopolies become complacent giants eventually. Sometimes this very loss of efficiency can raise a potential competitor's value enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives.

Hence, if one monopoly wants to keep its status for a long term, it behaves as if there were competition because of the risk of losing their monopoly to new entrants. Sometimes, consumers feel more comfortable if the market is controlled by one responsible monopoly because the product value will stay steadily, therefore, their investment is safe for a long term, particularly, in terms of these luxury, however, without any intrinsic value, jewelry such as gem-diamond.

From my point of view, the best business model is that the market is dominated by several (less than 5) major players. Hence, these companies are able to collect enough revenue to invest on research and development. In the meantime, they have to compete against each other to improve their product and service in order to stay in the market. These kinds of case can be found in the soft beverage market (Coca-cola and Pepsi), the computer microprocessor market (Intel and AMD), and the civil aviation market (Boeing and Air Bus).