As we learned in the section on Structure & Efficiency, monopolists will charge higher prices and produce lower levels of output than more competitive structures. We also learned in the section on Oligopoly that there is always a temptation for firms in an industry to collude and charge higher prices. These are some of the theoretical rationale for looking with suspicion at monopolies and mergers which greatly increase industry concentration.

    On the other hand, as we learned in the section on Costs, some industrial processes exhibit economies of scale. For such industries the dangers of increasing concentration and/or monopolization must be weighed against possible cost savings that can lead to lower prices for consumers. Some have also argued that large firms in concentrated industries are best able to fund the sort of research that leads to fundamental innovation.

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