When markets are dominated by one or a few large firms, concerns about the availability and efficiency of the following may arise:
- Output
- Price
- Consumer Choice
Output
When the market is dominated by one firm or a few large firms, output in those industries is likely to decrease, as:
- Such firms usually face a relatively inelastic demand curve, which allows them to limit their production, to keep their prices high, without facing a significant fall in the quantity demanded.
- The high barriers to entry crates by such firms, limit the number of entrants, hence decreasing the potential increase in output
- When the industry output depends on a small number of producers, the supply chain disruptions will have a higher impact on the total output in the market.
However, if there are few firms in the market, they may spend more resources on increasing output rather than on trying to outcompete other firms.
Price
When the market is dominated by one firm or a few large firms, prices in those industries are likely to be higher, because:
