Monopoly Markets (CIE IGCSE Economics)

The Firm

• Large profits generate money for continued investment in technology & product innovation
• Market power enables the firm to increase its global competitiveness
• Economies of scale can increase thereby lowering the average cost
• Price discrimination: the firm can charge consumers different prices based on the different price elasticity of demand for the product e.g. peak (inelastic) & off-peak (elastic) travel on trains

• Due to a lack of competition, there is a reduced incentive to be efficient
• Cross subsidisation can create inefficiencies
• Monopolies lead to a misallocation of resources as they limit supply in order to increase price
• Due to a lack of competition, innovation sometimes lacks effectiveness 

Employees

• Large profits often result in higher wages

• Having only one supplier in the industry limits the opportunity to change employers

Consumers

• Product innovation due to the firm's large profits may result in a better-quality product
• Cross subsidisation can lower prices on some products that the firm provides
• Prices may fall If firms pass on their cost savings to consumers (due to economies of scale) in the form of lower product prices

• A lack of competition is likely to result in higher prices as no substitute goods are available
• A lack of competition may result in no product innovation & worse product quality over time
• May experience worse customer service as the incentive to improve it is limited
• Cross subsidisation is likely to increase prices on some products offered by the firm

Suppliers

• Increased sales volume for some suppliers as they are able to supply products that are distributed nationally or internationally

• There is less competition for their products & a monopoly often has the power to dictate what price they will pay to suppliers