Can monopolistic dead weight loss persist without government intervention? If so how? I am researching monopolies and find dead weight loss proposed as an evil of monopolies but i can not find any examples or understand the reasoning behind it. I have seen the graphs and understand them but why would new businesses not enter the market if there are profits to be earned.


1 Answer 1


If I understand you correctly, monopolistic deadweight loss persists without gov intervention because of the following:

Economies of Scale: if monoplist is able to produce at below the market prices due to the presence of economies of scale, then the monoplist is effectively able to retain its dominance in the market as new firms entering the market cannot undercut the monopolist. Thus, deadweight loss persists.

Patenting: Monoplist could patent its products and process innovation. A new entrant would have to come up with a new idea of a similar product to enter the market tha the incumbet dominates. This however is not usually possible due to very high initial R&D investment requirement.

Rent-seeking: It is also possible that a monoplist could lobby governments in order to influence policy related decisions. Tobacco and weapons manufacturng companies are known to spend large sums on lobbying efforts.

These effectively serve as barriers to entry.

In the presence of barriers to entry, monopoly profits effectively transfer income from households to the monopoly. The monopolist could also under-produce in order to maintain monopoly profits. Examples could be the production of "limited edition" goods which are usually priced above average market prices. Because the monopolist earns above normal profits, it may not invest in cost-saving technologies.

In order to minimise or elliminate the deadweight loss, governments tend to invoke antri-trust laws and regulate the markets and industries. Deadweight loss persists in the absence of action by governments.

  • $\begingroup$ First of all thank you for commenting. To the first comment if a monopolist is already selling below what other companies can even afford to sell at then there is no dead weight loss because no one else would sell that low in any case. If they are selling above what other companies can afford to produce then there is a profit to be made by entering the market. I already know and accept that government intervention creates monopolies i am wondering if it is possible for monopolies to be harmful or even last for any great amount of time without government intervention. $\endgroup$
    – benjamin
    Oct 15, 2017 at 3:25
  • $\begingroup$ Good point, however, the monopolist does not sell below the competitive price in the long run, it lowers the price (having possessed the market power) to deter the entrants only in the short run (pricing strategy). In the long run, the monoply creates the deadweight loss by raising the price (again). The monopolist does not keep the price low permanently. Also note that, a new entrant can enter the market only if they have the "economies of scale" that the monopolist enjoys". I am sure you should be able to find reading materials online on these point. If i come across I will post them here. $\endgroup$
    – london
    Oct 15, 2017 at 8:48
  • $\begingroup$ Is there any examples of a sustained monopoly price without government protection? I understand this in theory but the only examples i can find argue against it. As an example OPEC raised oil prices making the extraction of shale oil profitable causing the bakken oil field boom creating competition. In contrast Rockefeller lowered oil price substantially through efficiency driving competitors out. I have literally spent three days and have read hundreds of articles searching for a single example that supports the graph that suggest "welfare loss". Pls help : ( . $\endgroup$
    – benjamin
    Oct 16, 2017 at 0:46

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