Among the different market structures, a monopoly provides the highest possible return for a new company. It is of the essence to note that in a monopoly market the new firm will become the only in the entire market, thus¸ it will have control over it. Also, in such cases, the firms have the highest level of market power since the consumers will have no alternatives. In a situation where a firm dominates the entire market, it means that it can put into place any strategy that they deem appropriate. For instance, the firm may choose to reduce output to increase prices and earn more profit.
When looking at monopoly it is of the essence to identify that the following attributes outs the firm at an advantageous position. It is held that for a monopoly it enjoys the aspect of profit maximization because it has a wide range of the market. The other attribute of a monopoly has the power to set prices because it has control over the market. The third aspect is high barriers to entry and exits the market will limit the new firm from compensation (Etro, & Colciago, 2010) As a result, it will continue to dominate the market, setting the rules of operation and conduct. It is important to note that monopoly is mostly good for the company and bad for the consumers. For the ventures, when a firm has invested in a monopoly market structure there is a great assurance for high returns for their investments. However, for the society, the monopoly will in most cases produce lower outputs and at a higher price compared when compared to competitive markets. Looking at the matter from the investor’s point of view the most favorable market structure for the new firm would be a monopoly.
Etro, F., & Colciago, A. (2010). Endogenous market structures and the business cycle. The Economic Journal, 120(549), 1201-1233.
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