Answer to Question #132318 in Microeconomics for zain

Question

Discuss the advantages of perfect competition. Does monopoly lead to more technological progress than perfect competition? Why?

Answer 1

Monopoly has a dual effect on technological progress. On the one hand, it promotes the development of science and technology, ensuring the introduction of the latest advances in production. On the other hand, it slows down technical progress because it has the ability to buy inventions and not use them.  Modern economists do not have a single point of view on the relationship between monopoly and technological progress.

 The existing practice of protecting inventions with patents, which give only one firm the right to use a certain technology, itself is the cause of monopolies.  Many large firms began, in fact, as patent monopolies. Patents are considered necessary, they accelerate scientific and technological progress because they provide high profits for a long time. Some economists believe that firms with significant monopoly power accelerate technical progress because they have greater financial capacity to do so. They spend their profits on research that can protect and strengthen their monopoly position, while medium and small firms do not have large incomes and spend much less money on research.

However, there is practical evidence that many of the most valuable inventions are carried out by small businesses.  A study of the most important inventions reveals that medium-sized firms often outperform industry leaders.  For example, small businesses account for 95% of the inventions introduced in USA, including aerosol cans, artificial insulin, flexible contact lenses, gyrocompasses, as well as new types of computers and biotechnology.  Therefore, modern economists come to the conclusion that the monopoly itself is the result of scientific and technological progress, rather than its cause. There is no convincing evidence that large monopoly firms play a particularly important role in accelerating scientific and technological progress.