Question

What is a normative argument against monopoly that could also be used against perfect competition? What is another normative argument against monopoly?

Answer 1

A monopoly firm or market refers to those market where there is no competition, ie; the competitors are eliminated in such a market and a single enterprise rules the market system. A competitive market has many competitors that maintains the market system and where the prices are being set by the market mechanism. But a perfectly competitive market is similar to a monopoly market and contains the following similarities

· In both the market structures, all the firms are expected to sell identical items or products

· The consumer purchasing behaviour and the consumers choices are limited in such markets.

· The firm pricing would be based on marginal cost equilibrium patterns.

· All the firms are expected to be price takers, ie; they are not able to influence the market system.

                                  Thus, on the analysis of above points, it can be seen that almost all the arguments against a monopoly market is available against a perfectly competitive market system also. The ideal competitive market is represented in a perfect competition and hence is similar to monopoly market in the above cases.

The only difference that occurs between the two is that a monopoly market has only one producer that produces, but a perfectly competitive market has many producers, but they produce identical products and hence behaves like an extended monopoly where the consumer choices gets limited.