Conventional economic theory asserts that inefficient markets result from
a product or service for which there are no ready substitutes being provided
by a single seller (i.e. a monopoly). An inefficient outcome is defined
as one that does not maximise the welfare gains to society. This is often
evident in monopolistically competitive markets; even more so in outright
monopolistic markets. A monopolist usually restricts output – and consumer
choice – and charges a price higher than would occur in a competitive situation.
Excessive profits are maintained because other competitors do not
enter the market,due to some market barrier to entry or because of ineffective
regulation.
