X-inefficiency is an idea in the industrial organization subfield of economics which defines another way in which a monopoly can be inefficient.

The idea (due to Harvey Leibenstein) is that a monopoly may not actually be maximizing profits, because it will not be minimizing costs. There are two reasons for this.

First, a monopoly simply doesn't have the same motivation to minimize costs as a competitive firm. A competitive firm which doesn't minimize costs will either be losing money, or go out of business, since the equilibirum price eqauls cost. A monopoly can be making money (possibly a large amount of money), even if it is not minimizing costs, and will not be forced out of business.

Second, a monopoly may have a harder time determining what its minimal costs are. A competitive firm can look around at all the competitors, see what they are doing, and judge what it should be doing. A monopolist lacks the benchmark provided by a competitive market, and so may mis-estimate what its minimal costs are.

If a monopolist doesn't minimize its costs, but it does choose its price and output well given the costs it's using, then the monopolist will charge too much, and sell too little. This is another source of inefficiency beyond that which comes from a profit-maximizing monopolist withholding output.

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