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Monopoly power can harm consumers from "summary" of Economic Analysis of Law by Richard A. Posner

Monopoly power can harm consumers when a firm is able to raise prices above the competitive level because it faces no effective competition. The harm to consumers stems from the fact that the higher price charged by the monopolist results in a reduction in consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a product and what they actually have to pay. When a monopolist raises prices above the competitive level, consumers lose out because they have to pay more for the product than they would in a competitive market. Furthermore, monopoly power can also harm consumers by reducing output below the competitive level. In a competitive market, firms are forced to produce at the level where marginal cost equals marginal revenue in order to maximize profits. However, a monopolist may choose to produce at a lower level of output in order to raise prices and increase profits. This reduction in output results in a deadweight loss to society, as the value of the foregone units of output exceeds the additional revenue earned from raising prices. In addition, monopoly power can harm consumers by stifling innovation and technological progress. In a competitive market, firms are motivated to innovate in order to gain a competitive edge over their rivals. However, a monopolist may have little incentive to invest in research and development if it is able to maintain its market power without innovating. This lack of innovation can harm consumers by depriving them of new and improved products that would have been developed in a more competitive market.
  1. It is clear that monopoly power can have negative consequences for consumers. By enabling a firm to raise prices above the competitive level, reduce output below the competitive level, and stifle innovation, monopoly power can harm consumers by reducing consumer surplus, creating deadweight loss, and depriving consumers of the benefits of technological progress.
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Economic Analysis of Law

Richard A. Posner

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