Monopoly: Difference between revisions

}}</ref> Monopolies are thus characterised by a lack of economic [[Competition (economics)|competition]] to produce the [[good (economics)|good]] or [[Service (economics)|service]], a lack of viable [[substitute good]]s, and the possibility of a high [[monopoly price]] well above the seller's [[marginal cost]] that leads to a high [[monopoly profit]].<ref>{{Cite book |last1= Blinder |first1= Alan S |first2= William J |last2= Baumol |first3= Colton L |last3= Gale |title= Microeconomics: Principles and Policy |type= paperback |date= June 2001 |publisher= Thomson South-Western |page= [https://archive.org/details/microeconomicspr0000baum/page/212 212] |chapter= 11: Monopoly |isbn= 0-324-22115-0 |quote= A pure monopoly is an industry in which there is only one supplier of a product for which there are no close substitutes and in which is very difficult or impossible for another firm to coexist |chapter-url= https://archive.org/details/microeconomicspr0000baum/page/212 }}</ref> The verb ''monopolise'' or ''monopolize'' refers to the ''process'' by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge [[Monopoly price|overly high prices, which is associated with aunfair decreaseprice in social surplusraises]].<ref name=Orbach&Campbell>{{cite journal | first1 = Barak | last1 = Orbach | first2 = Grace | last2 = Campbell | ssrn = 1856553 | title = The Antitrust Curse of Bigness | journal = Southern California Law Review | year = 2012}}</ref> Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).<ref name=Orbach&Campbell />

Monopolies derive their market power from barriers to entry – circumstances that prevent or greatly impede a potential competitor's ability to compete in a market. There are three major types of barriers to entry: economic, legal, and deliberate.<ref name=GoodwinEtAl-307308>{{cite book | last1 = Goodwin | first1 = N | last2 = Nelson | first2 = J | last3 = Ackerman | first3 = F | last4 = Weisskopf | first4 = T | title = Microeconomics in Context | edition = 2nd | publisher = Sharpe | year = 2009 | pages = 307–308}}</ref>

* ''[[Elasticity of demand]]'': In a complete monopolistic market, the demand curve for the product is the market demand curve. There is only one firm within the industry. The monopolist is the sole seller, and its demand is the demand of the entire market. A monopolist is the price setter, but it is also limited by the law of market demand. If he/she sets a high price, the sales volume will inevitably decline, if expand the sales volume, the price must be lowered, which means that the demand and price in the monopoly market move in opposite directions. Therefore, the demand curve faced by a monopoly is a downward -sloping curve, or a negative slope. Since monopolists control the supply of the entire industry, they also control the price of the entire industry and become price setters. A monopolistic firm can have two business decisions: sell less output at a higher price, or sell more output at a lower price. There are no close substitutes for the products of a monopolistic firm. Otherwise, other firms can produce substitutes to replace the monopoly firm's products, and a monopolistic firm cannot become the only supplier in the market. So consumers have no other choice.

* ''Economic barriers'': Economic barriers include [[economies of scale]], capital requirements, cost advantages, and technological superiority.<ref>{{cite book | first1 = William F. | last1 = Samuelson | first2 = Stephen G. | last2 = Marks | title = Managerial Economics | url = https://archive.org/details/isbn_9780470000410 | url-access = registration | edition = 4th | publisher = Wiley | year = 2003 | pages = 365–366| isbnISBN = 978-0-470-00041-0 }}</ref>

* ''Economies of scale'': Decreasing unit costs for larger volumes of production.<ref name="Nicholson 2007">{{cite book | last1 = Nicholson | first1 = Walter | last2 = Snyder | first2 = Christopher | title = Intermediate Microeconomics | publisher = Thomson | year = 2007 | page = 379}}</ref> Decreasing costs coupled with large initial costs, If for example, the industry is large enough to support one company of minimum efficient scale then other companies entering the industry will operate at a size that is less than MES, and so cannot produce at an average cost that is competitive with the dominant company. And if the long-term average cost of the dominant company is constantly decreasing{{clarify|date=December 2016}}, then that company will continue to have the least cost method to provide a good or service.<ref>Frank (2009), p. 274.</ref>

* ''Technological superiority'': A monopoly may be better able to acquire, integrate, and use the best possible technology in producing its goods while entrants either do not have the expertise or are unable to meet the largehigh fixed costs (see above) needed for the most efficient technology.<ref name="Nicholson 2007" /> Thus one large company can often produce goods cheaper than several small companies.<ref>{{cite book | last1 = Ayers | first1 = Rober M. | last2 = Collinge | first2 = Robert A. | title = Microeconomics | publisher = Pearson | year = 2003 | page = 238}}</ref>

* ''Network externalities'': The use of a product by a person can affect the value of that product to other people. This is the [[network effect]]. There is a direct relationship between the proportion of people using a product and the demand for that product. In other words, the more people who are using a product, the greater the probability that another individual will start to use the product. This reflects fads, and fashion trends,<ref>Pindyck and Rubinfeld (2001), p. 127.</ref> social networks etc. It also can play a crucial role in the development or acquisition of market power. The most famous current example is the market dominance of the Microsoft officeOffice suite and operating system in personal computers.<ref name="Frank2008" />

* ''Legal barriers'': Legal rights can provide the opportunity to monopolisemonopolize the market in a good. Intellectual property rights, including patents and copyrights, give a monopolist exclusive control of the production and selling of certain goods. Property rights may give a company exclusive control of the materials necessary to produce a good.

* ''Manipulation'': A company wanting to monopolisemonopolize a market may engage in various types of deliberate action to exclude competitors or eliminate competition. Such actions include collusion, lobbying governmental authorities, and force (see [[anti-competitive practices]]).

* ''Monopolistic price'': It may be possible for existing firms to ride the existence of abnormal profit by what is called entry limit pricing. This involves deliberately setting a low price and temporarily abandoning profit maximisationmaximization in order to force new entrants out of the market.

In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. High liquidation costs are a primary barrier to exiting.<ref name=Png-271>{{cite book | last = Png | first = Ivan | title = Managerial Economics | page = [https://archive.org/details/managerialeconom0000pngi/page/271 271] | publisher = Blackwell | year = 1999 | isbn = 1-55786-927-8 | url = https://archive.org/details/managerialeconom0000pngi/page/271 }}</ref> Market exit and shutdown are sometimes separate events. The decision of whether to shut down or operate is not affected by exit barriers.{{citation needed|date=December 2016}} A company will shut down if the price falls below minimum average variable costs.

While monopoly and perfect competition markrepresent the extremes of market structures<ref name=Png-268>Png (1999), p. 268.</ref> there is some similarity. The cost functions are the same.<ref>{{ cite book | last = Negbennebor | first = Anthony | title = Microeconomics, The Freedom to Choose | publisher = CAT Publishing | year = 2001}}</ref> Both monopolies and perfectly competitive (PC) companies minimize cost and maximize profit. The shutdown decisions are the same. Both are assumed to have perfectly competitive factors markets. There are distinctions,; some of the most important distinctions are as follows:

As long as the [[price elasticity of demand]] for most customers is less than one in [[absolute value]], it is advantageous for a company to increase its prices: it receives more money for fewer goods. With a price increase, price elasticity tends to increase, and in the optimum case above it will be greater than one for most customers.<ref>{{citationCite journal |last=Publisher |first=Author removed at request of original needed|date=June2016-06-17 2012|title=5.1 The Price Elasticity of Demand |url=https://open.lib.umn.edu/principleseconomics/chapter/5-1-the-price-elasticity-of-demand/ |language=en-us}}</ref>

Successful price discrimination requires that companies separate consumers according to their willingness to buy. Determining a customer's willingness to buy a good is difficult. Asking consumers directly is fruitless: consumers don'tdo not know, and to the extent they do they are reluctant to share that information with marketers. The two main methods for determining willingness to buy are observation of personal characteristics and consumer actions. As noted information about where a person lives (postal codes), how the person dresses, what kind of car he or she drives, occupation, and income and spending patterns can be helpful in classifying. {{citation needed|date=June 2012}}

A government-granted monopoly (also called a "''[[de jure]]'' monopoly") is a form of ''[[coercive monopoly]]'', in which a government grants exclusive privilege to a private individual or company to be the sole provider of a commodity. Monopoly may be granted explicitly, as when potential competitors are excluded from the market by a specific [[primary legislation|law]], or implicitly, such as when the requirements of an administrative [[delegated legislation|regulation]] can only be fulfilled by a single market player, or through some other legal or procedural mechanism, such as [[patents]], [[trademarks]], and [[copyright]]. These monopolies can also be the result of "rent-seeking" behavior, where firms will try to get the prize of having a monopoly, and the increase of profits in acquiring one from a competitive market in their sector.<ref>{{cite book|publisher=Gale Cengage Learning|location=Detroit|editor-first=Thomas|editor-last=Riggs|editor-first2=Mary|editor-last2=Bonk|workseries=Everyday Finance: Economics, Personal Money Management, and Entrepreneurship|title=Government-Granted Monopoly|year=2008|isbn=978-1-4144-1049-4|ol=OL21557400M|lccn=2007035070|url=https://archive.org/details/everydayfinancee0000unse|access-date=6 November 2018}}</ref>

In an unregulated market, monopolies can potentially be ended by new competition, breakaway businesses, or consumers seeking alternatives. In a regulated market, a government will often either regulate the monopoly, convert it into a publicly owned monopoly environment, or forcibly fragment it (see [[Antitrust]] law and trust busting). [[Public utility|Public utilities]], often being naturally efficient with only one operator and therefore less susceptible to efficient breakup, are often strongly regulated or publicly owned. [[American Telephone & Telegraph]] (AT&T) and [[Standard Oil]] are often cited as examples of the breakup of a private monopoly by government. The [[Bell System]], later AT&T, was protected from competition first by the [[Kingsbury Commitment]], and later by a series of agreements between AT&T and the Federal Government. In 1984, decades after having been granted monopoly power by force of law, AT&T was broken up into various components, [[MCI Communications|MCI]], [[Sprint Corporation|Sprint]], who were able to compete effectively in the long-distance phone market. These breakups are due to the presence of deadweight loss and inefficiency in a monopolistic market, causing the Government to intervene on behalf of consumers and society in order to incite competition. {{citation needed|date=June 2012}} While the sentiment among regulators and judges has generally recommendedbeen thatagainst breakups are not as remedies for antitrust enforcement, recent scholarship has found that this hostility to breakups by administrators is largely unwarranted.<ref name="Van Loo">{{Cite journal|last=Van Loo|first=Rory|date=2020-01-01|title=In Defense of Breakups: Administering a "Radical" Remedy|url=https://scholarship.law.bu.edu/faculty_scholarship/954|journal=Cornell Law Review|volume=105 |issue=7 |page=1955 }}</ref>'''{{rp|1}}''' In fact, some scholars have argued that breakups, even if incorrectly targeted, could arguably still encourage collaboration, innovation, and efficiency.<ref name="Van Loo" />'''{{rp|49}}'''

The law regulating dominance in the European Union is governed by Article 102 of the ''[[Treaty on the Functioning of the European Union]]'' which aims at enhancing the consumer's welfare and also the efficiency of allocation of resources by protecting competition on the downstream market.<ref>DG Competition, ''DG Competition discussion paper on the application of Article [102] of the Treaty to exclusionary abuses'' [2005] [http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf PDF]. {{Webarchive|url=https://web.archive.org/web/20180508145349/http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf |date=8 May 2018 }}. accessed 4 May 2018.</ref> The existence of a very high market share does not always mean consumers are paying excessive prices, since the threat of new entrants to the market can restrain a high-market-share company'scompany’s price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power a monopoly may confer, for instance, through exclusionary practices (i.e., pricing high just because it is the only one around). It mayshould also be noted that it is illegal to try to obtain a monopoly, bythrough practices oflike buying out the competition, or equalsimilar practicesmethods. If onea monopoly occurs naturally, such as a competitor going out of business, or a lack of competition, it is not illegal until such time as the monopoly holder abuses thetheir power.

First, it is necessary to determine whether a company is dominant, or whether it behaves "to“to an appreciable extent independently of its competitors, customers, and ultimately of its consumer"consumers.” Establishing dominance is a two-stage test. The first thing to consider is market definition, which is one of the crucial factors of the test.<ref>Case 6/72 ''Europemballage Corpn and Continental Can Co Inc v Commission'' [1973] ECR 215</ref> ItThis includes the relevant product market and the relevant geographic market.

In the 17th century, Shah Abbas established New Julfa (a suburb in the capital of Isfahan) to concentrate [[Armenia]]n financial capital in Iran. Accordingly, he gave [[Armenia]]ns various privileges, including the monopoly to trade Persian filoselle (raw silk). Armenians exported it all over the world, including Asia, Europe, and America. By the 1750s, Armenia already controlled 75% of the total silk trade in the area. This resulted in a boom in Armenian commerce, which lasted for the next 150 years.<ref>{{Cite journal|last=Bakhchinyan|first=Artsvi|date=2017|title=The Activity of Armenian Merchants in International Trade|url=https://src-h.slav.hokudai.ac.jp/rp/publications/no14/14-03_Bakhchinyan.pdf|journal=|pages=24}}</ref>{{Better source needed|reason=The current source is insufficiently reliable ([[WP:NOTRS]]).|date=September 2023}} At present, as it happens, Armenia's own economy is itself highly monopolized; in fact, with 19% of its economy monopolized, Armenia was the most monopolized country in Eastern Europe and Central Asia in 2009. <ref>{{Cite journal |last=Mikaelian |first=Hrant |date=2015 |title=Informal Economy of Armenia Reconsidered |url=https://www.academia.edu/14915579 |journal=Caucasus Analytical Digest |issue=75 |pages=2–6 |via=Academia.edu}}</ref>

The [[Comcast]] Corporation is the largest [[mass media]] and [[communications]] company in the world by revenue.<ref name="mediadb.eu">[http://www.mediadb.eu/en/data-base/international-media-corporations/comcastnbcuniversal-llc.html IfM – Comcast/NBCUniversal, LLC] {{Webarchive|url=https://web.archive.org/web/20180608214927/http://www.mediadb.eu/en/data-base/international-media-corporations/comcastnbcuniversal-llc.html |date=8 June 2018 }}. Mediadb.eu (2013-11-15). Retrieved on 2013-12-09.</ref> It is the largest [[cable television|cable]] company and home [[Internet service provider]] in the United States, and the nation's third largest home [[telephone service provider]]. Comcast has a monopoly in [[Boston]], [[Philadelphia]], and many small towns across the US.{{citation<ref needed|datename=July"islr.org">[https://ilsr.org/wp-content/uploads/2020/08/2020_08_Profiles-of-Monopoly.pdf 2013}}Profiles of Monopoly: Big Cable and Telecom] ilsr.org (2020-08). Retrieved on 2024-05-30.</ref>

After mergers in 1949 with the [[All-America Football Conference|AAFC]] and 1970 with the [[American Football League|AFL]], the [[National Football League]] was facing competition USFL following their successful first season in [[1983 USFL season|1983]]. The USFL initially operated as a spring league, beginning their season approximately one month after the NFL season had concluded and would finish the season approximately one month prior to the start of NFL preseason games. With an increasing popularity and ability to sign big names, such as the 1982-84 Heisman Trophy winners [[Herschel Walker]], [[Mike Rozier]] and [[Doug Flutie]], the [[New Jersey Generals]] owner [[Donald Trump]] persuaded other owners to move the season so it directly competed with the NFL’sNFL's. At the same time an antitrust lawsuit was filed against the NFL as it convinced the [[Big Three (American television)|3 major American television channels]] against broadcasting any USFL games. The trial lasted 42 days and the jury found the NFL has indeed acted monopolistically and violated antitrust laws but as the NFL was not directly responsible for the financial difficulties of the league, the USFL was awarded $1 in damages, which was tripled to $3 due to it being an antitrust case. The USFL announced it would forego the 1986 altogether to appeal the decision; however, the league would fold within a week of the trial ending. The US Supreme Court would, four years later, allow the original ruling to stand and order the NFL to pay damages and to include interest, bringing the total to $3.76.<ref>{{Cite magazine |last=Rohan |first=Tim |date=12 July 2016 |title=Donald Trump and the USFL: A 'Beautiful' Circus |url=https://www.si.com/nfl/2016/07/12/donald-trump-usfl-new-jersey-generals-owner |magazine=Sports Illustrated}}</ref> The NFL did previously survive an anittrustantitrust lawsuit in the 1960s.

=== Other examplesExamples of possible/potential monopolies ===