consumers and monopoly

hello =)

shall post another cartoon here.



this cartoon shows two firms merging, in the name of "serving consumers better". in actual fact, the merger is a "Greed-driven corporate merger", which the firms will not say explicitly. so the main aim of the merger is to increase total revenue.

how is this possible? in a monopoly, the merged company is the only seller of the good/service. as such, consumers have no alternatives to turn to. the demand for the firm's good/service is thus PRICE INELASTIC.

in order for the company to increase (not maximise) total revenue, the company might choose to increase the price of the good/service. this is so as an increase in price will lead to a less than proportionate decrease in quantity demanded. consumers either pay more or choose to go without for the good/service.

in the cartoon, consumers are seen running away from the merged firm because they are against the idea of a monopoly. as written in our lecture notes, "it is a generally help opinion that monopoly is against public interest" since monopoly will result in a loss in consumer welfare. this is when u need to have controls for the monopoly. methods of control include prohibition of monopolisation of a market by any firm, as well as regulation of monopolies.

through regulation of monopolies, firms will not be able to exploit consumers and will not suffer dynamic and X-inefficiency. therefore, by regulating monopolies, consumers' welfare will be improved.

that's all!!

Mui Suan :)