Mark Thoma — What's so bad about monopoly power?

What's so bad about a company amassing monopoly power? 

When firms have such power, they charge prices that are higher than can be justified based upon the costs of production, prices that are higher than they would be if the market was more competitive. With higher prices, consumers will demand less quantity, and hence the quantity produced and consumed will be lower than it would be under a more competitive market structure. 

The bottom line is that when companies have a monopoly, prices are too high and production is too low. There's an inefficient allocation of resources. 

In addition, the tactics used to establish monopoly power, such as driving competitors out of business or thwarting potential entrants, can also cause considerable harm to households who own the businesses that are forced to close their doors.… 

The problems with monopolies go beyond the economic effects. Many large, economically powerful companies also have considerable political influence and the ability to "capture" the political and regulatory process. This allows a powerful firm to tilt the legal and regulatory processes against any potential threat to its market power, and to bring about changes that further enhance the profits it earns.

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What's so bad about monopoly power?
Mark Thoma | Professor of Economics, University of Oregon