Monopoly and Natural Monopoly

Persistent monopoly pricing is generally thought to be bad because, among other things, it reduces the potential gains from trade. There are circumstances, however, under which, if only competitive pricing is permitted, suppliers will not supply a good and potential gains from trade will be lost. Under these circumstances, consumers may actually be better off permitting monopoly or having a government-regulated price that permits suppliers to make non-negative profits. This Demonstration provides a simple model showing these possibilities. Competition law, including antitrust law, intellectual property law, and other areas of law, attempts to distinguish situations of harmful monopoly from beneficial monopoly. The question for policymakers and lawmakers is under which circumstances government can do this accurately enough to do more good than harm, given the tendency for monopolies to break down or fade in the long run.