Defining monopoly deems challenging to writers because it only exists in an abstract form. Monopoly is therefore made of two words; ‘mono’ meaning single or one and ‘poly’ control. As a market structure, its aim is to help firms in decision making to maximize profits. A Monopolist business would, therefore, be explained as one that has complete dominance in the market in terms of supplying a good or service and hence having no close substitutes. Monopoly may form as a result of having ownership to a scarce resource and the power to exploit it. It may also develop when a government gives a business the right to be one or when a company has a patent and hence the exclusive right to the supply the good or service. It may also form as a result of two competing business merging. Monopoly is characterized by; high barriers to entry for other business, price making, its power to maximize profit and having price discriminations.
Monopoly firms are believed to have emerged from the free market and therefore these businesses having the ability to restrict output to raise prices. It is out of this alleged monopoly that economic inefficiency, low capabilities on production and low standards of living are based at. It is believed that in such a situation the government ought to intervene through antitrust laws which make it illegal for a business to compete unfairly. While some economists see monopoly through free market or the economic concept of monopoly upon where the broad definition of monopoly as a single supplier of a good and service with no close substitute is based, others try to explain its emergency through a political perspective.
The political concept of monopoly has it that, monopolistic firms emerge when the government uses force to have a specific market reserved to a particular business. Therefore, to understand the background of monopoly, researchers and other writers give comparisons of the contrasting concepts. The economic thought has a significant concentration on the number of firms and their size. Upon them is an argument that the monopoly power is based on how small or large the business is, and so is a business emerging naturally as the only supplier of a good in a particular industry. This argument led to the use of the terms ‘natural monopolies’ against ‘unnatural monopolies.’ The Natural monopolies are monopolies that arise from nature such as the need to produce in order to develop while the unnatural monopolies are made by law.
The political concept holds on to the idea that size and number don’t matter as far as a monopoly is concerned so long as there is government influence. The concept has it that, the power for them can either be held by many small businesses against one or vice versa and monopoly would still apply. They, therefore, discourage the grouping of companies that voluntarily got the monopoly against those protected from competition by the government.
Real World Example
The two concepts of monopoly; the Natural and law each provide different examples to justify ideas behind them. The political concept of monopoly offers an example of the United States Postal Services (USPS) which back in the 1979 had the American talking of the possibilities of it becoming private because of the losses it was making, only for the government to intervene and subsidized the services for the operations to continue since the services were a necessity to the country. Privatization was reasonable to many particularly competitors since that would have led to efficiency and the people low prices and also the utilization of other resources such as roads and planes.
The United States Postal Service (USPS) was, however, experiencing challenges such as delays on the consumer purchasing receipts which would be submitted a day after the transaction means that the sooner the receipts would have been submitted, the earlier the postal service would have money to invest, but instead, they continued experiencing loses. Another option was that of having them get high-interest rates from the most competitive banks. They, however, found a way of solving their problems besides people’s contribution, and they are now enjoying huge profits. The USPS is said to be receiving a lot of revenue that won’t stop it from reaching for the international revenues. In cases of borrowing, the USPS got loans from the Federal Financing Bank which came with more profits especially in the 19th century. As a government-protected monopoly, other business with similar services suffered as the government made it illegal for the use of other business to deliver letters and protected it from government regulations exempted from federal taxes.
Market concentration in the United States increased by 75% from the 1990s an estimation done on the massive corporate mergers according to these merger’s revenues. In the quest of enriching themselves, these monopolies are somewhat exploitative on their employees and to consumers in terms of high prices. Anti-monopoly researchers and other think tanks revealed that 50% of the United States market is held by just a few monopolistic companies and also hold the largest share of the US economy while rest of the small companies in the country divide what’s left.
There are now few domestic producers today due to advanced technologies which have led to high level of production for the big companies hence the supply of a variety of goods and services are done on the websites and their physical chain stores. Market concentration might have increased drastically since the 1980s, but research shows that prices have not increased. For example, there are fewer manufacturers on things like TVs, washing machines and other consumer goods but quality has not been compromised, and the prices have maintained, and it is the same case with airlines.
Price makeups is one of the many characteristics of monopolies which they set as they try to maximize profit. Although the prices of many commodities might not have increased, the high production with the ease of technologies should translate to consumers getting most products at a relatively low price. Another research shows that a lot of returns for the monopoly companies go to capital rather than being distributed to wages. Monopolies are known to stagnate wages, and therefore with the number of laborers reducing with an increase of technology application, this then means the employees have less negotiating power and instead are exploited by their employers.
One of the monopolies strategies is to have control over natural resources that are used and critical for production. This gives them the power to raise prices even above the marginal coast because of the single ownership. This could happen without losing a single customer in the world market because they have no competitor to lose. A classic example of a monopoly is that of the De Beers in the 20th century who dominated the diamond market, and at some point they flooded the market with diamond similar to those of small producers when they refused to join the single channel, this would include buying all diamonds from these independent producers and later supply them.
This is a strategy that is used by monopolies to discourage competitors from entering the market. They usually create a network that values their goods and services for having used them over a long period of time. Hence any introduction of new products in the market seems rather unattractive to this network. Therefore, their sizes are always an advantage to them. The economies of scale are achieved through, low interests on loans with banks bulky buying, long-term contracts which leads to an average cost of production.
The contribution of monopolies in the world market is negatively attributed, but there are some instances where their monopolistic businesses are realistic or unavoidable especially where consumers need to be protected in terms of cost pricing and price ceiling. The imagine of having Price discrimination from the monopolies, and what that would mean to small producers and the public at large allows the producers to maintain the equilibrium where the demand and supply intersect for a fair market. Reduced efficiency from monopolies has the competition working on their incentives that will attract customers such as cutting on cost and improve on quality while on the other hand monopolies have no incentives. Monopolies have no innovation, but with competition, innovation would satisfy consumer needs in the market and make it more competitive. Lastly, monopolies aim is to produce less and charge more, and this prompts other producers to produce enough such that there is the creation of varieties of products to meet customer preferences instead of deadweight loss from monopolies.
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