Monopolies: The good, the bad, and the ugly

[The spartan]

No, not that kind of monopoly. I am talking about the ones we see and participate in every day! Monopolies carry a bad rep with their name, but what are they really and why do they exist in the first place?

Well, lets start off with the basics: a monopoly is any firm that is a sole seller of a good or service without any close substitutes. A monopoly may remain a monopoly if there are barriers of entry to the market. There are three MAIN types of barriers of entry, and they are:

A key resource that is owned by a single firm: the resource that is in demand is controlled by a single firm, hence, monopoly. This form of monopoly is fairly rare, but does indeed exist. An example of this would be DeBeers diamond company.

Government enabled monopoly: a firm is given exclusive rights via a patent to goods, allowing a monopoly. It happens regularly, but there are arguments FOR this type of monopoly, as it gives incentives to regularly invent new products to patent. Examples of this would be practically any drug that requires a prescription.

Natural Monopolies: Any case where the fixed cost for producers in the market is substantially more than its variable cost, making entry to the market very difficult. Examples of this would be many types of utility providing firms; such as water, electricity, cable providing services, etc.

There is also a another type of market that is called "monopolistic competition". Though, it is not an actual monopoly as there are many firms in that type of market, just with differentiated products. Such markets are very common, with examples ranging from toothpaste brands to toilet paper brands.

Now monopolies tend to have a few things in common, such as having access to long-run profit and causing dead-weight loss in the market. They create a decrease in total surplus in the market they are in as they do NOT produce goods at the the allocatively efficient point in the market, but rather they produce at the point where their marginal revenue and marginal cost curves meet to maximize profit. In short, restrict supply to raise price and earn a profit. This is usually bad, but, in all honesty, are monopolies actually helpful? Patents (government enabled monopolies) incentivises firms to be more inventive and produce original and useful goods by providing them with profit. Natural monopolies exist because they by definition can not exist at the allocatively efficient point. What are your guys' two cents on this? Monopolies yay or nay?

[removeduser_4536284751384]

I am talking about the ones we see and participate in every day!

I can't think of one thing I used today that was supplied by a monopoly. They are very rare, and mostly state sponsored.

[The spartan]

I can't think of one thing I used today that was supplied by a monopoly. They are very rare, and mostly state sponsored.

...Did you turn on your water? Read the entire post...

[removeduser_4536284751384]

...Did you turn on your water? Read the entire post...

water, that's the only thing. Btw I've read your post three times, because it's trying to be some kind of humourous yet informative business aritcle, and failing miserably. People on this forum know this stuff, and it's way too short.

[The spartan]

water, that's the only thing. Btw I've read your post three times, because it's trying to be some kind of humourous yet informative business aritcle, and failing miserably. People on this forum know this stuff, and it's way too short.

Actually, I have people SWEAR to me, on this forum, that monopolies only result from the government, which is not true at all. Btw, I am doubting you read the entire post, because you are also insinuating that you do not use a multitude of utilities such as electricity, or cable, or any prescription medications.

Anyways, I doubt quite a few people on this forum knows all of this, and I made this thread as a discussion, not as an informative post.

[Khalid]

I can't think of one thing I used today that was supplied by a monopoly. They are very rare, and mostly state sponsored.

Debeers, Walmart and Monsanto.

[removeduser_4536284751384]

Where I live I can choose from three diferent electricity companies, more landline telephone suppliers than I can count, and in this area 2 different digital TV providers. In more urban areas it would 3+.

Water is the only thing there is a monopoly on here.

[The spartan]

Where I live I can choose from three diferent electricity companies, more landline telephone suppliers than I can count, and in this area 2 different digital TV providers. In more urban areas it would 3+.

Water is the only thing there is a monopoly on here.

You would be surprised how many facilities are natural monopolies.

You could call lots of companies verging on monopolies... But are not dictionary diffinition monopolies... Microsoft comes to mind in this regards...

And thats not to mention.. Duopoly and Oligopolies....

The main pros I see is:
1. Monopolies are usually highly stable.
2. Employ large numbers of people stabily.

Main cons:
1. Directly control price which means they can potentially scam the consumer.
2. Less competition means less need to strive to perform well... (imagine running a foot race in which your only competition was a bedridden sick person who couldnt actually walk let alone run... That would directly make you not perform at your peak.. Since your bound to win anyway)

Indeed, though I wouldn't say monopolies have complete price control if they are looking to maximize profits, and I don't know when they wouldn't be. I could see why innovation wouldn't be as big of a goal in a monopoly (save if they are looking for a patent), do you think government regulation could be an answer to that?

[Stildawn]

You could call lots of companies verging on monopolies... But are not dictionary diffinition monopolies... Microsoft comes to mind in this regards...

And thats not to mention.. Duopoly and Oligopolies....

The main pros I see is:
1. Monopolies are usually highly stable.
2. Employ large numbers of people stabily.

Main cons:
1. Directly control price which means they can potentially scam the consumer.
2. Less competition means less need to strive to perform well... (imagine running a foot race in which your only competition was a bedridden sick person who couldnt actually walk let alone run... That would directly make you not perform at your peak.. Since your bound to win anyway)

[Ältester der Motten]

2. Less competition means less need to strive to perform well... (imagine running a foot race in which your only competition was a bedridden sick person who couldnt actually walk let alone run... That would directly make you not perform at your peak.. Since your bound to win anyway)

Not neccessarily bad, since that could mean you turn out well-rested.

Biggest problem I have w monopolies is the lack of competition. Without which, innovation stagnates.

Without which also pressure decreases. Two sides of the same coin.
And neither of these cases always applies, since humans thend to be a bit more varied than 1/0, aswell as their morals.
Also university research, for example. Progress isn't completely dependant upon economical competition.
For every scenario there are cases.

[Admiral Piett]

Monopolies aren't caused by governments, but they are enabled and promoted by governments.

[The spartan]

Monopolies aren't caused by governments, but they are enabled and promoted by governments.

Monopolies are created by the reasons listed.

[Stildawn]

I dont know about your governments but here in NZ they are certainly not promoted by governments... Actually im pretty sure its against the law to have a monopoly... Wait... Isnt that what happened to Microsoft a few years back... They got told to split into separate companies or something because of the monopoly they held?

[Admiral Piett]

I dont know about your governments but here in NZ they are certainly not promoted by governments... Actually im pretty sure its against the law to have a monopoly... Wait... Isnt that what happened to Microsoft a few years back... They got told to split into separate companies or something because of the monopoly they held?

That case had to do with Microsoft blocking other developers from developing Internet browsing. In exchange for having Microsoft not broken up, they would allow other developers to use browser programs on Microsoft's own interface.

[Vizsla]

This may be the only opportunity I will have to ask this question ever again. I couldn't let it go. I'm sorry.
So how come there is only one Monopolies and Mergers Commission (or Federal Trade Commission or Competition Commission)?
Had to be done. I feel better now. I suppose I ought to at least pretend to make some sort of serious contribution to the topic for form's sake:

Monopolies are bound to arise from time to time. People who own/run businesses want to make money. They don't (and probably shouldn’t) care about fairness and justice for all – because their primary purpose is to make money, that is their motivation. In capitalist countries governments are supposed to protect their citizens from getting screwed in this way – for the good of society.
Clearly there are instances where monopolies are unavoidable – see op. They are still bad. They may be a necessary evil but are no less evil because of it. Perpetual monopolies result in bad service and high prices. This is inevitable because people who own/run businesses are always motivated to make money. We should not begrudge them this – why else would they get up of a morning and do a day’s work?
This might seem like a good reason to go communist. It’s not – because if no one owns anything no one is motivated to work so everything turns to .

[orange]

Microsoft is monopoly created by state. State granted privileges to Microsoft in form of patents and copyrights. I personally divide monopolies to two categories. Coercive monopoly and non coercive monopoly. Coercive monopoly is a monopoly, which is created by coercion, extortion or violence. Coercive monopolies are bad for customers. Because they sell overpriced low quality products and tend to not innovate much. Non coercive monopolies are not a problem. They can not keep their prices high for much time, because competing firms will arise and sell the same product with lower price. That will not happen with coercive monopolies, because of violence which will be used against any possible competing firms.

Most of todays monopolies and oligopolies are coercive. They are created by state laws, which they intensively lobbied for.

[chamaeleo]

Biggest problem I have w monopolies is the lack of competition. Without which, innovation stagnates.

Breaking into a monopoly-held market can be difficult or impossible, as lobbyist-drafted legislation is emplaced to prevent it. The effects of most pesticides and herbicides consumed by humans are poorly known, yet if I wanted to start an organic farm I'd be forced to jump through many prohibitively expensive hoops and then wait 7 years for the land to purge itself before I can stick an "Organic" label on my veggies...yet poisoned crops have no label at all! If the demand were not so great, there would be no pesticide-free produce at all.

Getting screwed by the only guy w the goods is so normal that most folks don't even recognize their victimhood.

[JP226]

Biggest problem I have w monopolies is the lack of competition. Without which, innovation stagnates.

If that were the case you'd never get satellite and google/ sprint/ verizon wouldn't be pushing wireless and 4g internet.

Monopolies aren't bad inherently. A marriage contract is essentially a monopoly and all of us, scratch that, most of us don't complain about it... maybe complaining is not the right word, "wouldn't break it." And to that effect, there are really very few monopolies. Mostly what we see is a monopolistically competitive company that outperforms everyone else to such a degree they feel like a monopoly. The true monopolies we do see are cable companies, utility companies and insurance companies, though the last one is more of an oligolpoly. All are propagated by the government and heavily regulated. Insurance companies having their state fiefdoms and regulations for whatever the coverage is forces other industries out, cable companies are granted sanctuary to put up their cable lines, and utility companies are almost state run industry/ monopolies in and of themselves. I suppose the justification is that because of the start up costs and cheapness of providing the product itself, they'd naturally take advantage of the market anyhow, so why not let the government jump in. I guess they, state and local governments, think they are making it better somehow by getting their cut. All I know is I pay 400 bucks between cable and electricity.

[chamaeleo]

If that were the case you'd never get satellite and google/ sprint/ verizon wouldn't be pushing wireless and 4g internet.

Everytime I see some TV ad displaying on a US map the disparity between the 3G networks of Companies A and B, I am witnessing competition...as a motivator for innovation.

[JP226]

I'm saying comcast is motivating sprint, google, and verizon, and AT&T as well. Comcast isn't discouraging it with their monopolies in so many markets.