What Are the Welfare Effects of Monopolies and Oligopolies?

Monopolies and oligopolies have a direct impact on the prices of goods, which affects economies. They also indirectly have an impact on the job market as a result of their control over pricing.

Because they have complete market control and no competition, monopolies are able to make a sole determination of the pricing of goods. They can also exercise complete control over the flow of goods into the market, which allows them to create artificial demand. Similarly, oligopolies accomplish much the same thing through a small circle of aligned corporations in which each possesses a market share. Consumers' budgets are directly affected by the cost of the goods they purchase.

When prices are consistently set too high, the economy may suffer for it. In addition to determining the price for their goods, monopolies and oligopolies can also decide what to charge suppliers. This can indirectly affect job markets because when vendors are forced to pay higher prices for goods, they must make budget cuts elsewhere. Often, cuts come in the form of a reduced workforce. Suppliers who are paid lower prices by monopolies and oligopolies because they are the only source of traffic for their product are similarly affected. Both problems contribute to the unemployment rate.