Readers Question: What is the benefits of monopoly. Identify and explain these benefits that brings to the market.
I need examples related to the benefits too.
I have written a few posts about the benefits of monopoly’s and mergers in the past
I will try to give a few different examples of the benefits of monopolies, for example the unit cost of
A Boeing 747-400 is $228-260 million (2007)
Boeing 747-8 $285.5-300 million (2007)
In 2007, there were orders for only 16 aircraft. Clearly an industry like this is going to have huge economies of scale. To develop a Boeing 747 is very expensive. The unit cost of over $200 million dollars means that it would not make sense to have more competition in this market. If there was competition, then the unit costs would probably increase substantially making it potentially unprofitable. The Boeing will have various economies of scale such as:
- Technical economies
- Bulk buying
- financial economies
- marketing economies
Diagram showing economies of scale
This is an example of a market where firms with monopoly power are likely to lead to lower average costs and better deals for consumers. In developing the next generation of jumbo jets, the firms will require huge amounts of investment. This investment is only viable for a firm with a high market share and large profit.
Other Benefits of Monopoly
- Supernormal Profit can be used for research and development
- Domestic monopoly may face competition from around the world.