The Absence of Competition and Price Discrimination in the Market Research Paper - 145

The Absence of Competition and Price Discrimination in the Market - Research Paper Example One of the losses to society as a result of monopoly versus perfect competition is limited output and high prices. Because of its market dominance, a firm in a monopolistic marketplace has the exclusive rights to raise prices. Consequently, when it does so, the society has no alternative but to buy high cost products. In contrast, in perfect competition, if one business raises prices the society can just move to the next competitor for a lower price. Thus, society gets better prices (Samuelson & Marks, 326). The losses to society can further be explained in terms of supply and cost curves. In perfect competition, prices and the number of goods produced are arrived at by looking at the market demand and supply curves. Accordingly, society is assured of competitive prices, which necessarily lead to minimum prices. In a monopoly, the supply curve is hardly there. The amount of output does not determine the prices. Whether the sole firm produces less or more, it can still maximize the pr ices because the competitive level is restricted. Hence, in a monopoly, firms maximize their profits by raising prices without any added benefit to society (Samuelson & Marks, 327). In addition, in a monopoly, the sole firm produces less in order to increase the price, consequently exploiting society. Finally, the loss to society as a result of monopoly versus perfect competition is the reduction in the consumer surplus. Under monopoly, because of raised prices firms earn much more than what consumers gain from them. As a result, the reduction in consumer surplus leads to a reduction in consumer social welfare.