7 Main Disadvantage of Monopolistic Competition

(i) Since, monopoly firm is a price maker, it charges high price to secure maximum monopoly revenue. Consumers have no option, but to pay the price fixed by the monopolist. A monopolist does not face competition, he often exploits the consumers.

(ii) Since, monopolist cares only for his monopoly profit, he does not worry, whether the cost is rising, falling or is constant. Thus, monopoly implies distortions in the allocation of resources. It exploits a smaller number of factors than is economically necessary. The resources are not fully exploited and the plant capacity remains under-utilised. The unused capacity of the firms can also be called as a social waste.

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(iii) Monopoly firm is inefficient in the sense that it does not produce at the minimum point of the average cost curve, as the demand curve faced by a monopolist is downward sloping. It leads to situation of excess capacity. He restricts the output.

(iv) Monopoly firms often resort to a number of unfair practices to injure or eliminate the rival firms through cut throat competition. For this, many times, firms fix ridiculously low prices far below cost to compete away the rivals. The loss in one market can be compensated by charging a very high price in other markets.

(v) Monopolist, by virtue of his control over the capital and wealth is able to influence the political affairs of the economy, especially in under-developed countries, which lack capital formation. The political authority in such countries cannot ignore or dissatisfy the monopolists

(vi) Resource allocation is inefficient under monopoly.

(vii) Monopoly has lead to a tendency of price discrimination, i.e., a practice of charging different prices for the same commodity.

Thus, we can say monopolist has power to manipulate the price and exploit his customers. He may even supply a commodity at a price lower than the one, which prevails under perfect competition. However, whether a monopolist will work in this direction is an unresolved question.