Could monopoly do better than competitive market?

Each business exists today stands between the edges of “perfect competition” and “monopoly”.

Most of the firms exist in the competitive market sell the same products and offer the same services. Since none of the firms controls the market they must sell at whatever price the market determines. If their market still looks attractive, new firms might join this market and by that create more competition, less influence for the existing firms, increase the supply and eventually drive the prices down. By that, they eliminate the profits that drove them into the market at the first place.

If too many firms enter the same market, the profits will go down, they will suffer loses, the faintest will fold and the prices will raise back to a sustainable level.

Many times this kind of markets is better for the customer, because it drives the prices down. Mainly in the areas that don’t require much innovation. (for example electricity providers, airlines, public transportation, supermarkets etc…)

In the opposite of perfect competition stands the monopoly. While in perfect competition firms have to sell at the price determined by the market, monopoly owns its market. So it simply sets its own prices. Those firms has no competition, thus they produce the quality-quantity-price combination that maximizes their profits.

There are monopolies that use their power for bad — raising their prices and providing poor quality services. Thanks to this kind of firms, monopolies suffer from bad reputation. But not all of monopolies are bad.
Lets discuss the kind of companies that are so good at what they do that they have no competition. Google is a good example. Since the early 2000’s google had no real competition in the field of search engines. Neither Microsoft’s Bing nor Yahoo! constituted significant competition. Therefor Google could make great profits out of its business plan, which is obviously advertising, spread on multiple new fields , invest resources in research and development in those fields and eventually raise our quality of life. This is a great example of how monopoly can work in a good way.

Good question Nirel. Lets assume Google wasn’t much different than other search engines out there. Then the search engine market was probably more attractive and more competition was created. That would have led to more startups entering the field of search engines and since the main income of search engine is search advertising — the prices would go down. Each company would get a smaller piece of the cake (of online ads) so they had less money to expand and invest in R&D (Research and Development). Less R&D means less progress in the tech field. Less progress in the tech field means less new markets. Less new markets means weaker economy and that means poorer quality of life.

The answer is yes. There are many examples in the tech industry of firms that their dominance was overtaken.
AT&T had a monopoly on telephone service for most of the 20th century, and today anyone can get a cheap cellphone plan from various providers.
IBM had hardware monopoly in the 70’s that was overtaken by Microsoft’s software monopoly (funny fact is that Microsoft sold IBM their software at the beginning to gain reputation).
The American Tobacco Company, the Steel Company, the Standard Oil Company were all monopolies that broke down.

Monopolies that hold back progress and take advantage of the lack of alternatives to charge unfounded prices are dangerous. But their future is to extinct. On the other hand, many monopolies drive progress because the profits they would have years ahead provide a powerful incentive for them to reinvent themselves. These kind of monopolies can keep innovating because their profits enable them to make long-term plans and finance ambitious research projects that firms in the competitive markets can’t even dream of. And some times, the outcome of their research is a formation of new markets that create opportunities for new firms to raise and produce great products that can change our lives for good.

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