MONOPOLIES

Monopolies

Monopolies

Introduction

Monopolies (from the Greek monopolion, “one seller”) are markets with a single producer or distributor of a certain product or service. In addition, this exclusivity serves as a barrier to free market entry, product differentiation, and a stable (inelastic) demand for products due to the non-availability of close substitutes. In economics, monopolies are the antithesis of free competition markets with multiple producers or distributors (sellers) of a product or service. Neoclassical and most contemporary economists regard monopolies as secondary, imperfect, and deviant markets in relation to free competition as a primary, perfect, and normal market.

Market monopolies can produce social problems on several interconnected grounds. These grounds are concentration of economic and other power, elimination of equality, inclusion and freedom in economy and society, economic and social inefficiency, and the transformation of economic into political and other domination.

First, market monopolies generate social problems by their concentration and abuse of economic as well as political and other power and domination. Economists measure this concentration by the Lerner (1955) index of the degree of market power (given by the difference between price and marginal costs). The index is assumed to be the maximum (1) under monopoly and the minimum (0) in free competition. Monopolies can become serious social problems due to their tendency toward abusing such concentration of economic and other power. In short, the concentration of power corrupts and generally makes problematic market monopolies.

Second, market monopolies trigger social problems through elimination or restriction of economic and other equality, inclusion, and freedom. Monopolies reproduce economic and other social stratification through inequality and exclusion based on status, class, and power. In general, market monopolies usually act as the forces of economic and other exclusion, closure, privilege, and un-freedom.

Third, market monopolies breed social problems by their economic and social inefficiency, as reflected and measured by their typically higher prices and lower production and employment in comparison with competitive markets. Adam Smith suggested in 1776 that under market monopolies price is the maximal, while production and consumption are the lowest, as compared with free competition. Like Smith, J. S. Mill concluded in 1884 that, due to their limitation of supply and maximal price, monopolies are so economically inefficient and destructive in that they amount to the taxation of the industrious for the support of indolence, if not of plunder.

Fourth, market monopolies cause social problems in their tendency toward transforming and expanding economic into political and other power. Monopolies seek to dominate not only a certain market and the economy, but also society as a whole, including politics and government. Alternatively, due to their economic power and influence on the government, market monopolies can gain even more monopolistic privileges. Monopolies tend to expand from markets into polity and all society in the form of monopolistic political and social domination (plutocracy and oligarchy). No wonder economist Leon Walras presented in 1936 the image of market monopolies as fortifications spoiling and tyrannizing society as a whole.

Regulated Monopolies

Regulated monopolies are organizations that are granted the legal right to operate in an ...