Actually companies do that. It's called supply and demand. In a perfect competitive market, suppliers will continue to create products until demand is fully satisfied. This leads to a lowering of prices through competition until the economic profit is just enough to keep a company in the market. If oversupply occurs, companies fold, if under supply, they enter the market and compete. They do this to such a level that one additional item of supply will produce zero profit due to the size of supply.
Now in a monopoly environment, you do not look to maximize supply, you look to maximize profit. What this means is that you do not meet all of demand, you meet only enough demand to keep your profit margin at a high rate, which means you charge more and produce less then what the market can suck up.
Because of lack of competition, you get fewer advances and services. Look at the US phone industry under AT&T. Did you have Call Waiting? Did you have low priced long distance? How about Two Way Calling? Hell, what about even a choice of phones? Nope, nada, none of that. That's a monopoly for you.
Here's a text book explanation:
Encyclopedia: Monopoly Sponsored links:
:Alternate use: Monopoly (game)
In economics, a monopoly (from the Greek monos, one + polein, to sell) is defined as a market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide (and a lack of viable substitute goods), as well as high barriers to entry for potential competitors on the market.
Monopoly should be distinguished from monopsony, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly).
Forms of monopoly
Monopolies are often distinguished based on the circumstances under which they arise; terminologies differ, but one of the most common is to distinguish natural monopoly (also known as de facto monopoly) from government-granted monopoly (also known as de jure monopoly or coercive monopoly).
A monopoly can arise because of the peculiar features of a particular market — such as when a monopolist controls a unique natural resource, a public transport line or technological achievement. A monopoly can also arise from "fair" competition, when a single provider of a good or a service is chosen extensively or exclusively by the marketplace. Such monopolies are termed de facto monopolies. However, there are not examples of perfect "de facto" monopolies: The most effective "de facto" monopoly in recent times has been the De Beers diamond trading company, which held slightly less than 90 percent of the world diamond market in the mid-1980s.
When a monopoly arises from laws which explicitly forbid competition (or effectively prevent it through heavy regulation and subsidy), it is described as a "de jure monopoly", or government-granted monopoly (sometimes called a coercive monopoly). The term state monopoly is sometimes used to describe a type of government-granted monopoly in which government, either directly or indirectly through legislation, exercises significant control over the monopolist's decisions, and typically include industries that import, manufacture, and/or distribute alcohol, money, stamps, drugs, munitions, and gambling. An example of a "de jure" monopoly is AT&T, which was granted monopoly power by the US government, only to be broken up in 1982 following a Sherman Antitrust suit.
The term "natural monopoly" is sometimes used to describe monopolies that come about because production conditions make a sole provider most efficient. Examples of a natural monopoly would be power distribution, water distribution or sewage transport to and from private households, as it is usually not practical for a single household to have more than one power line, water pipe or sewage pipe to the house.
The term is sometimes (loosely) used to describe companies such as Microsoft or Standard Oil, which do face market competition, but which command a large market share and use their size to compete in ways which are considered "unfair" — such as dumping products below cost to harm competitors, creating tying arrangements between their products, and other practices regulated under Antitrust law. However, since the products of the aforementioned companies do not fall into a unique category, but into a category of generalised or differentiated products, the suppliers are not engaged in monopolistic practises, but in practices known as "monopolistic competition".
Large corporations often attempt to monopolize markets through horizontal integration, in which a parent company controls consolidates control over several small, seemingly diverse companies (sometimes even using different branding to create the illusion of marketplace competition). A magazine publishing firm, for example, might publish many different magazines on many different subjects, but it would still be considered to engage in monopolistic practices if the intent of doing this was to control the entire magazine-reader market, and prevent the emergence of competitors.
Monopoly and efficiency
The economic incentives for a monoply make it likely that they will sell a lower quantity of goods at a higher price than firms would in a purely competitive market in order to secure monopoly profits. This will typically lead to an outcome which is inefficient in the sense of Pareto efficiency. It is also often argued that monopolies tend to become less efficient and innovative over time, becoming "complacent giants", because they don't have to be efficient or innovative to compete in the marketplace. Some argue that it is good to allow a firm to attempt to monopolize a market, since practices such as dumping can benefit consumers in the short term. Once the firm grows too big, it can then be dealt with via regulation.
Sometimes, though, this very loss of efficiency can raise the potential value of a competitor enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives.
When monopolies are not broken through the open market, often a government will step in to either regulate the monopoly, or forcibly break it up (see Antitrust law). Public utilities in many locations are an example of the former. AT&T and Standard Oil are good examples of the latter. When AT&T was broken up into the "Baby Bell" components, MCI, Sprint, and other companies were able to compete effectively in the long-distance phone market and started to take phone traffic from the less efficient AT&T.
Economic analysis
In economics a company is said to have monopoly power if it faces a downward sloping demand curve (see supply and demand). This is in contrast to a price taker that faces a horizontal demand curve. A price taker cannot choose the price that they sell at, since if they set it above the equilibrium price, they will sell none, and if they set it below the equilibrium price, they will have an infinite number of buyers (and be making less money than they could if they sold at the equilibrium price). In contrast, a business with monopoly power can choose the price they want to sell at. If they set it higher, they sell less. If they set it lower, they sell more.
If a monopoly can only set one price it will set it where marginal cost (MC) equals marginal revenue (MR) as seen on the below diagram. This can be seen on a supply and demand diagram for the firm. This will be at the quantity Qm and at the price Pm. This is above the competitive price of Pc and with a smaller quantity that the competitive quantity of Qc. The profit the monopoly gains is the shaded in area labeled profit.
absolute value) for most customers is less than one, it is very advantageous to increase the price: the seller gets more money for less goods. With an increase of the price the price elasticity tends to rise, and in the optimum mentioned above it will for most customers be above one.