MONOPOLY

MONOPOLY

Historically, a monopoly was a legally protected special privilege, to provide a specified product or service. The protection was against the competition of others. Sometimes the government itself would provide the product or service. Other times a private person or company would provide it. In either event, the supplier was comforted by the government-issued guarantee, that no one else would be permitted provide that particular good or service.

Over time, consumers came to question monopolies, because monopolists, knowing that there was no threat of competition, were customarily arrogant and, more often than not, provided a shoddy product.

Monopolies do not always cause very high prices. Prices tend to be higher with a monopoly than without, but the laws of economics still apply to monopolies. The purpose of monopolies is to maximize profits, not prices, and they are rarely the same thing. For example, if someone were to have a monopoly on motorcycles, he could try to sell them at $50,000 each, but no one would buy them when they could buy cars at the same price. Even if he were to take a $48,000 profit on each vehicle, his total profit would remain low due to the low level of turnover. However by selling them at $5,000 each, his profit per bike may be much less, but the turnover would be higher, as he could directly compete in the car market. Consequently the overall profit is likely to be higher.

There is almost no such thing as a pure monopoly, because there are ALWAYS alternatives, including doing without. If it is too expensive the consumers will find another way to satisfy their needs. Therefore monopolies cannot price 'carte blanche'.

It is well established that competition leads to lower prices, and greater variety in most cases. However competition can lead to such a reduction in profits that industries are forced to leave the market, and so eventually the market tends toward a monopoly, or at least a limited few providers. Economies of scale can also trend toward fewer, but larger, providers. Competition does not always benefit the consumer; if a company is struggling then they will often cut corners and reduce quality in order to stay afloat. This could lead to a cyclical market, where companies come and go, and there is no stability.

It is not true that, where there is a monopoly, prices rise to totally unreasonable levels. As demonstrated above, they will be forced to balance themselves to an affordable level in order to maximize profits.

The concept of monopolies is too complex to be dismissed as either good or bad. Some monopolies provide an invaluable benefit on the public. For example, when public utilities were legally enforced monopolies, it ensured that everyone was connected to the utility. Prices were, on average higher, but it meant the farmer out in the countryside could still have a phone and electricity. If he had to pay for actual installation and service costs, he could never have afforded them. Therefore, the masses subsidized the remote, and the government limited prices to allow a reasonable profit in return for protecting the utility from competition. Today, there is some competition because technology has made that possible, but that was not the case a century ago. Similar arguments can be made for all other public service monopolies such as train and mail monopolies.

Whether a monopoly is a positive or a negative infringement is only possible to judge on the facts of each situation.


Schwabl Thomas


Essay topics:
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Coca Cola