High profit levels boost investment in R&D.It has been consistently argued by some economists that monopoly power is required to generate dynamic efficiency, that is, technological progressiveness.According to Austrian economist Joseph Schumpeter, inefficient firms, including monopolies, would eventually be replaced by more efficient and effective firms through a process called creative destruction.
This is certainly the case with Microsoft. Domestic monopolies can become dominant in their own territory and then penetrate overseas markets, earning a country valuable export revenues.They can benefit from economies of scale, and may be ‘ natural’ monopolies, so it may be argued that it is best for them to remain monopolies to avoid the wasteful duplication of infrastructure that would happen if new firms were encouraged to build their own infrastructure.Monopolies can be defended on the following grounds: See also: Natural monopolies Evaluation of monopolies The advantages of monopolies A monopolist with no substitutes would be able to derive the greatest monopoly power.With no close substitutes, the monopolist can derive super-normal profits, area PABC. Given that price (AR) is above ATC at Q, supernormal profits are possible (area PABC). At profit maximisation, MC = MR, and output is Q and price P. In general, the level of profit depends upon the degree of competition in the market, which for a pure monopoly is zero. As with all firms, profits are maximised when MC = MR. Monopolies can maintain super-normal profits in the long run.Given that this will reduce competition, such mergers are subject to close regulation and may be prevented if the two firms gain a combined market share of 25% or more. A monopoly could be created following the merger of two or more firms.Producers may have patents over designs, or copyright over ideas, characters, images, sounds or names, giving them exclusive rights to sell a good or service, such as a song writer having a monopoly over their own material.The Royal Mail Group finally lost its monopoly status in 2006, when the market was opened up to competition. Governments may grant a firm monopoly status, such as with the Post Office, which was given monopoly status by Oliver Cromwell in 1654.
A pure monopoly is a single supplier in a market.