Advantages & Disadvantages of Monopolies

by Neil Kokemuller; Updated September 26, 2017

A monopoly is an industry, sector or product category dominated by one provider. While a monopoly offers that provider an opportunity for exclusive selling opportunities, it doesn't always preclude other entrants, and government restrictions are often an obstacle.

Monopoly Advantages

A compelling benefit to the monopolist provider is exclusive access to customers in need of particular goods and services. Because no business competitors exist, the monopolist doesn't have to invest as much to create or market goods. The lower cost structure allows for stable and consistent profit margin opportunities, according to the Library of Economics and Liberty.

Though monopolists don't have competitors to push them, monopolies do give providers incentive to research, develop and create innovative solutions because of the strong possibility of making a profit. This incentive not only compels enhanced options for the business, but it benefits customers when a revolutionary solution improves the quality of their lives. Exclusive offers also mitigate the time and hassle of exploring competitive opportunities.

Monopoly Disadvantages

As of the time of publication, most monopolies that operate in the United States are controlled by government regulations, according to the LEL. Local, state and federal governments get involved when supporting a monopoly is deemed to benefit the public, as is common with utility companies in certain areas. Though they're intended as support, some regulations, such as fixed prices, limit the pricing freedom and profit opportunities for companies. A primary reason monopolies rarely exist anymore without government intervention is that new competitors typically come along at some point when a business succeeds in an industry.

Additional drawbacks of monopolies include:

Limited customer opportunities: If the monopolist fails to deliver a solution that is perceived as a good value by the marketplace, customers don't have an alternative source. The lack of competition may cause some companies to get complacent in making improvements or upgrades to their offerings. Customers may become dissatisfied with a monopolist, especially when government regulations control it.

Costs to obtain monopoly position: When a company attempts to convert its innovative solution into a monopoly position without government support, it often expends significant resources to achieve that status. These costs, as well as the costs of fending off competitors, negate some of the improved profit margin opportunities.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.