monopolies certainly don't have a good reputation they're seen as greedy and burdensome and we have some economic analysis now to back up those feelings monopolists don't face the market pressures which keep prices low a monopolist can restrict production without fear that a competitor will swoop in and fill the void and when they restrict production they can push their price up well beyond marginal costs and while consumers will be disappointed with these higher prices the real economic problem here is the deadweight loss deadweight loss represents the value of mutually beneficial trades which are not being made we saw this example in the last video where we noted that Apple charges far more for an iPhone than the marginal cost of producing one and that means a lot of demand for iPhones is going unsatisfied even though those consumers are willing to pay more than the opportunity cost of the resources used on the other hand though apple is an extremely Innovative company the iPhone in particular was an innovation that has had a profound impact on the world and the reason apple is the only producer of the iPhone is that we have a patent system which rewards innovators with a monopoly in order to incentivize that innovation in the theory of the firm we noted how important innovation was replacing old Technologies with new ones which Joseph schumpeter called creative destruction is one of the main things we want the economy to do new technology allows us to produce more using less it reduces our use of resources while increasing our well-being the main benefit of a monopoly is that it gives incentives for research and development awarding people and companies patents allows them to profit from their good ideas encouraging the production of good ideas and companies with a monopoly in practice devote much more money to research and development in order to stay ahead of the curve they're only able to do this because of the excess profits they earn that isn't the only way they use their access profits though firms with Monopoly power often engage in rent seeking which is the effort to increase one's share of wealth without creating new wealth this is a fancy way of saying that firms with Monopoly power will often do things like Lobby for changes in the law which favor their business to the detriment of competitors what works so well about a market system is that in order to make money you need to do something for other people you need to produce something of value that they're willing to pay you for voluntarily rent seeking is the effort to undermine that mechanism by restricting consumer choice or reducing competition one of my favorite examples of rent seeking is the ban on Tobacco advertising nurses instituted bans on various kinds of tobacco advertisements over time but each time at the front of the pack lobbying for the Restriction to be put in place was Marlboro that's right Marlborough wanted Congress to prohibit them from advertising they knew each time that they would be able to find ways to reach their customers but with the ban in place it was harder for competitors to challenge marlborough's dominant position in the market for cigarettes they even managed to convince Congress to let them make anti-smoking commercials which were cleverly crafted to be anti-smoking on the surface but very Pro smoking in the content and so in addition to the deadweight loss created by firms with Monopoly power there's also the problem of corruption when positive economic profits are up for grabs people will go to Great Lengths to grab them and in the case of monopolies that often means bribes and violence we see it everywhere in the world whether it be De Beers and the blood diamonds in the 90s Vladimir Putin and gazprom or suharto and the trade Monopoly on clothes in Indonesia the flaw is greed and it's a human failing in a capitalist system that greed is supposed to be redirected into positive outcomes through competition but without that competition greed can be a very mortal sin indeed