Economics For Dummies, 4th Edition

Chapter 8

Monopolies: Bad Behavior When Competition Is Lacking

IN THIS CHAPTER

Producing less and charging more than competitive firms

Maximizing profit

Benefiting society (in certain situations)

Abiding by regulations

Economists use the word monopoly to describe either an industry that has only a single firm or a firm that has no competitors. Both of those definitions make sense because the word monopoly is Greek for “one seller.”

Monopolies are much maligned because their profit incentive leads them to raise prices and lower output to squeeze more money out of consumers. As a result, governments typically go out of their way to break up monopolies and replace them with competitive industries that generate lower prices and higher output.

At the same time, however, governments also intentionally create monopolies in other situations. For instance, governments issue patents, which give monopoly rights to inventors to sell and market their inventions. Similarly, in many places, local services such as natural gas delivery and trash collection are monopolies created and enforced by ...