Monopoly and Economic Efficiency: Perspective from an Efficiency Wage Model
Bo Zhao
DOI: 10.4236/me.2011.25092   PDF    HTML     10,461 Downloads   14,631 Views  


The objective of this paper is to analyze the efficiency consequences of monopoly from the perspective of an efficiency-wage model based on Shapiro and Stiglitz (1984). An important innovation of our model is that a firm can raise the probability that a shirking worker is detected by increasing its effort or investment in the monitoring of workers. By comparing with the competitive equilibrium we find that monopoly is associated with higher unemployment rate and less monitoring. Surprisingly, however, monopoly is not necessarily dominated by perfect competition in terms of economic efficiency.

Share and Cite:

Zhao, B. (2011) Monopoly and Economic Efficiency: Perspective from an Efficiency Wage Model. Modern Economy, 2, 830-833. doi: 10.4236/me.2011.25092.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] C. Shapiro and J. Stiglitz, “Equilibrium Unemployment as a Worker Discipline Device,” American Economic Review, Vol. 74, No.3, 1984, pp. 433-444.

Copyright © 2024 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.