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Monopoly: Changes Surrounding Contemporary Businesses Essay

2044 words - 8 pages

The changes surrounding contemporary businesses have been noted to have increased in their frequency, direction and overall strength that have their long term implications on strategic management and investment within these industries (Barreto, 2010). The free market hypothesis has argued that optimum allocation of resources within an economy can be achieved when there is no interference from external third parties to develop effective and efficient markets (Bremmer, 2010). In order to achieve this high degree of market effectiveness and efficiency, governments around the world pursue a competition development strategy across the industries so that value maximisation can be achieved for customers and the economy. Although the economic literature has noted significant weaknesses associated with the monopolistic industry dynamics, however it has become apparent that in practice it can become an important value adding structure to achieve certain socio-economic outcomes (Cowling & Tomlinson, 2012). The aim of this essay is to critically review and discuss different arguments that have presented in favour of permitting monopoly in contemporary business environment. In order to achieve this aim, the essay uses arguments from diverse schools of thoughts and appraises their outcomes with the help of examples and case studies from practice.

The term monopoly has been defined Mankiw (2011) as the business, firm or organisation that “is the sole seller of a product without closed substitute” (p. 300). This simple definition uses term “product” in broad meanings, which includes technologies, research, processes and services (Coase, 2013). The research surrounding monopolistic market structures have argued that there are certain features and characteristics that are associated with them, which include (a) singularity of business within the industry or industry segment; (b) barriers to entry for other businesses to enter the industry or industry segment; and (c) profit maximisation of the monopolistic firm in short and medium (Allen, 2013). These three factors have led to the overarching belief that monopolistic market dynamics only favours businesses, which have the interest of shareholders and aim of maximise wealth creation. This is the reason that there is plethora of economic literature discrediting monopolistic market dynamics, arguing that in the long term the overall value achieved for consumers and the economy is lower than in free competitive market dynamics (Gómez-Ibáñez, 2003; Wendong, 2004).

The purist school of thought within contemporary economics has highlighted that if monopolistic firms do not pursue their profit maximisation objectives then there are number of advantages that can be attributed to them (Foster, 2014). It is argued that monopoly industries develop organisations that have extensive operations and customer base, which helps them in achieving efficient and effective economies of scale and scope. These economies of scale...

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