Editing Allocative efficiency (section)

=== An example of allocation inefficiency ===

With the market power, the monopoly can increase the price to gain the super normal profit. The monopolies can set the price above the marginal cost of the production. In this case, the allocation is not efficient. It results in the dead weight welfare loss to the society as a whole. In real life, the government's intervention policy to monopoly enterprises will affect the allocation efficiency. Large-scale downstream companies with more efficient or better products are generally more competitive than other companies. The wholesale prices they get are much lower than those of their competitors. It is conducive to improving the efficiency of allocation. Ind erst and Shaffer (2009) found that banning prices would reduce allocation efficiency and lead to higher wholesale prices for all enterprises. More importantly, social welfare, industry profits, and consumer surplus will all be reduced.