Answer: For firms that are selling a product that serves universal needs and that do not face significant competition, a monopoly strategy makes sense. This allows the firm to control the market and set prices as they please without having to worry about competition driving down prices. However, it is important to note that this strategy may not be sustainable in the long run as it may lead to government intervention and regulation to prevent abuse of market power. Additionally, the emergence of new technologies or substitutes may threaten the firm's monopoly position in the future.
Explanation: When a firm is selling a product that serves universal needs and has no significant competition, it can gain a monopoly position in the market. This allows the firm to set high prices and enjoy high profits, as consumers have no other options but to buy from the firm. Such a strategy can be lucrative for the short term, but it also comes with risks.
One risk is government intervention and regulation to prevent abuse of market power. When a firm has a monopoly position, it can abuse its power to charge unfair prices and limit competition, which can harm consumers and the overall economy. To prevent such abuse, governments may impose regulations or antitrust laws to ensure that firms with market power behave fairly and do not harm consumers or competitors.
Another risk is the emergence of new technologies or substitutes that can threaten the firm's monopoly position in the future. For example, the rise of e-books has disrupted the publishing industry, challenging the monopoly position of traditional publishers. Similarly, the emergence of renewable energy sources has disrupted the fossil fuel industry. Therefore, firms with a monopoly position must be aware of the potential threats from new technologies and competitors and adapt accordingly to remain competitive.