Elsewhere in this issue of ECONOMIC REVIEW, Steve Stoddard discusses an examination question about the regulation of monopoly. Here, I will discuss how we can identify whether an industry is so concentrated that there is a danger it will act like a monopoly.
If we compare a monopoly with a perfectly competitive market, we can see that if the monopolist chooses to maximise profits it will produce less output than would be produced in the competitive market, and it would sell at a higher price. Consumer surplus would be reduced in this situation, so the authorities may wish to intervene to protect consumer interests.
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