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Monopolies Essay

3593 words - 14 pages

Monopolies

What is a monopoly? According to Webster's dictionary, a monopoly is "the exclusive control of a commodity or service in a given market.” Such power in the hands of a few is harmful to the public and individuals because it minimizes, if not eliminates normal competition in a given market and creates undesirable price controls. This, in turn, undermines individual enterprise and causes markets to crumble. In this paper, we will present several aspects of monopolies, including unfair competition, price control, and horizontal, vertical, and conglomerate mergers.

Unfair Competition

Barriers to Entry. In general, a monopoly by one company possesses the power to create barriers to entry for competing companies in a particular market. Also, once a company has achieved a loyal following, it then becomes easy for that company to maintain control of the market. Thus, leading to elimination of potential competition.
Increasing Returns. In some markets, the profits for high volumes of goods are extremely exaggerated. For example, in the manufacturing industry, each product requires a certain material and labor cost to produce it. Large companies are often able to under-cut competitors’ prices, drive them out of the market, and then raise prices again.1 Consequently, this increased volume increases profit, allowing such companies an even greater power.

Incomplete Information. Often, once a company gains control of a particular market, that company does not disclose complete information in regard to their products. Such is the case in the current Microsoft antitrust case. Microsoft not only does not disclose complete information on their software products, but also goes one step further by making their software products incompatible with other operating systems. As a result, the consumer has no choice but to buy Microsoft software products exclusively.
Once a company has successfully dominated a business market, they can use that control to move into other markets by:

· Squeezing out competitors
· Dominating sales of the product
· Controlling prices of the product
· Acquiring additional companies, inside and outside, of the field

Enforcement. The Antitrust Division of the Department of Justice is responsible for protecting the competitive process through enforcement of antitrust laws. The Division has challenged barriers to American companies' ability to compete in the market. They have broken up criminal conspiracies that increased consumers' prices for products. They have obtained civil consent decrees that will contribute to lower prices and improved quality for such products. In addition, they have also worked with businesses to restructure mergers in order to protect competition in the American marketplace.

Predatory Pricing

Predatory pricing is a tool that is used to achieve market power. It is the practice of pricing below cost. This can foster market power in three simple ways, by...

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