Title: Why Monopolies Often Earn Zero Economic Profit - Supply Curve
Headings: Why Monopolies Often Earn Zero Economic Profit
Why Monopolies Often Earn Zero Economic Profit
Content: When regulation is imperfect or when a monopoly is free of regulation, don't we expect it to earn economic profit for its owners? Typically, no. Government barriers to entry—for example, zoning laws—are often controversial because, as you've learned, a monopoly may charge a higher price and produce less output than would a competitive market. Thus, government will be tempted to pull the plug on a monopoly's exclusive status and allow competitors into the market. The monopoly, in turn, will often take action to preserve government barriers to entry. Economists call such actions rent-seeking activity. Any costly action a firm undertakes to establish or maintain its monopoly status is called rent-seeking activity. In countries with corrupt bureaucracies, rent-seeking activity includes bribes to government officials; in less corrupt governments, it includes the time and money spent lobbying legislators and the public for favorable policies. For example, in 1999, AT&T acquired several cable companies, giving the firm a monopoly on cable television and cable Internet service in millions of homes across the United States.