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What do economists mean by monopoly power? What do monopolists do with this power? What determines the magnitude of this power?
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MICRO ESSAY What do economists mean by monopoly power? What do monopolists do with this power? What determines the magnitude of this power? A monopoly is an industry with only one firm. When there is only one firm in the market it is very unlikely to take the market price as given. Knowing that they are the sole suppliers of a certain good or service, the monopoly will raise its prices as high as possible, especially if the demand for this certain good or service is inelastic. An example of this would be a pharmaceutical company, which has patented a certain drug, and because they know that people will buy it regardless the price they increase it to increase their profits. Hence monopoly power arises when a firm has the power to behave independently on the market and is not forced to operate efficiently due to lack of competition. Monopoly power is...
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