Profitability
Under competition, firms are able to earn only a normal rate of return on their investment. Monopoly profit-profit above the normal rate of return-is the reason why firms seek to acquire and maintain market power. The closer is profit to the normal rate of return, the less is output restricted below the competitive level, the closer is price to the marginal cost, and the better is market performance.
Efficiency
A widely quoted observation holds that” The best of all monopoly profits is a quite life.” A firm that is insulated from the throes of competition may be a little slower to reorganize production, when that needs to be done, because there are no competitors nipping at its hells. The suspicion that market power will sometimes show up as a waste of resources-higher cost as well as higher price-causes us to single out efficiency as an element of market performance.
Progressiveness
What is meant by efficiency in the preceding discussion is in a strict sense static efficiency-the extent to which production occurs at minimum cost (whatever or not output is being restricted to keep the price up). Progressiveness, or dynamic efficiency, refers to the rate of technological progress. A debate of respectable vintage among economists concerns the tradeoff, if any, between, market power and technological progress. Must we grant firms monopolies to encourage innovation? If we must, should we? Slide rule manufacturers and Swiss watchmakers take note.
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