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Economic vs. Political Monopoly: A Comparative Analysis

  • Paper Type: Free Essay
  • Wordcount: 1199 words
  • Subject: Business
  • Published: 04th March 2015
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Monopoly is a primary concept in economics, but its explanation differs significantly with experts. Two primary views exist: the political concept of monopoly, which attributes monopoly power to government intervention and protection from competition and the economic concept of monopoly, which focuses on market dominance and firm size. (Reisman, 1996) [4]. This article states these two concepts, critically examining their implications for economic efficiency, competition and market structure. These varying concepts lead to the conclusions that whether monopolies are artificially created through government rules or emerge naturally in free markets.

Economic Concept of Monopoly

According to Arnold, 2001 [1], monopoly force evolve naturally when firms outweigh competitors, leading to market domination. The fewer the firms in an industry and the larger their market share, the greater their monopoly power. This concept suggests that monopoly can emerge because of competitive forces rather than external intervention. The economic view explains monopoly as a market situation where a single firm is the supplier of a good or service with no close alternatives within a particular geographic region.

Microsoft has been accused of limiting competition by bundling products and creating barriers to entry for competitors through its dominance in operating systems and software. Wal-Mart and Microsoft are often recognized monopolies under the economic view due to their influence and intense market share (Simpson, 2005) [5]. Similarly, Wal-Mart have driven many smaller retailers out of business, consolidating its market position through its aggressive pricing strategies and supply chain efficiencies (Maurice & Thomas, 2002) [3]. Under this concept, firms raise concerns about whether this perspective accurately differentiates between competitive success and true monopolistic power that succeed through consumer preference and efficiency can still be termed as monopolies.

One major critique of the economic concept is that it fails to account for the origins of market dominance. By grouping firms that have gained market power through voluntary trade with those that have achieved it through government intervention, the economic concept overlooks crucial distinctions. The definition of monopoly based on how broadly or shortly a market is defined. This leads to contradictions. For instance, if automobiles are referred as a single market, no firm is a monopoly, but if individual brands like Ford or Chevrolet are viewed differently, each would be a monopoly of its brand (Reisman, 1996) [4]

Political Concept of Monopoly

The political concept of monopoly argues that a monopoly exists only when the government restricts competition through tariffs, exclusive licensing, subsidies, quotas, or legal protections (Reisman, 1996) [4]. In contrast, emphasizes government intervention as the basic cause of monopoly force. A firm is a monopoly because it is protected from competition by state-enforced limitations and not because of its market size.

The USPS maintains its monopoly status through government protection Unlike Microsoft or Wal-Mart, whose domination stems from competitive efficacy. Private companies such as FedEx or UPS could likely offer superior service, if competition were allowed, potentially driving the USPS out of business. An example of a political monopoly is the United States Postal Service (USPS). The United States Postal Service has exclusive rights to deliver legal restriction, first-class mail prevent private competitors from enter this market (Friedman, 1990) [2].

The political perception also delivers how small firms can employ monopoly force against high competitors. In some cases, local governments pass approval that prevent large retailers from entering specific region, effectively granting smaller businesses monopoly-like preservation (Simpson, 2005) [5]. For example, some cities , preventing Wal-Mart from opening in certain locations by imposing square footage limits on retail stores. In this case, monopoly force does not stem from firm size but from government intervention that alter market competition.

Similarly, antitrust laws— can themselves create monopolies which are designed to restrict monopolistic practice. Microsoft, for instance, limiting its ability to merge with other companies and restricting its competitive strategies, faced legal action under antitrust laws, (Maurice & Thomas, 2002) [3]. These regulation, while intended to advertise competition, can be used precisely by competitors to weaken successful firms than noticing true monopolistic practices.

Contrasting the Two Perspectives

The political concepts find out patent that government inference limits competition. The economic perspective considers monopoly as a function of firm size and market concentration, even if the firm has achieved its position through competition. The economic and political concepts of monopoly lead to contradictory conclusions about market dominance.

The economic view states that firms with large market shares can engage in price manipulation and harming consumers, restrict output. This difference is critical when assessing the negative outcome traditionally related with monopoly force, such as reduced innovation, lower efficiency, higher prices.

Even large firms must continue to innovate and maintain low prices to retain customers, as competition remains a constant threat in a free market. Though, the political concepts states that such inefficiencies only occur when firms are prevented from competition by the government laws.

For example, Microsoft has remained dominant in the software industry because of its continuous innovation and strategic market positioning not because of government restrictions. Conversely, the USPS, has higher costs and lower efficiency, shielded from competition, practicing the inefficiencies of political monopolies (Friedman, 1990) [2].

The Role of Government in Monopoly Formation

Any firm remains subject to competition as long as government does not create artificial barriers to entry, regardless of size. Without such restrictions, monopolies would finally face innovative disruptors or new competitions that challenge their dominations. The core statement of the political perception is that monopolies are a result of government intervention and not arise naturally in free markets but (Reisman, 1996) [4].

Many monopolies in history have existed due to government policies, not free market forces. Further, historical evidence substantiates this perspective. Examples:

  • USPS: Remain to work as a legal monopoly in spite of exact alterations in private delivery services.
  • AT & T (pre-1984 breakup): A government-restricted mobile monopoly that kept control by regulatory limitations on competitors.
  • British East India Company: A government monopoly with exclusive trading rights, supported by military force.

Conclusion

The economic definition, which relates monopoly with market share and firm size, often fails to differentiate between true monopolistic power and competitive success. The debate between the political and economic perception of monopoly is essential to understanding regulation and market competition. The political definition offering a clearer and more objective structure for understanding market dynamics, indicates monopolies only when government action limits competition.

The indications of these concepts are essential for decision-making. The antitrust interventions may be justified, if monopolies are seen as natural market findings. if monopolies exist primarily due to government intervention. Ultimately, the political perspective ensuring that competition remains the driving force of economic progress by providing more consistent and objective approach to defining monopoly.

References

  1. Arnold, R. A. (2001). Economics (6th ed.). South-Western College Publishing.
  2. https://www.amazon.in/Economics-Roger-Arnold/dp/0324163649
  3. Friedman, M. (1990). Free to choose: A personal statement. Harcourt.
  4. https://periferiaactiva.wordpress.com/wp-content/uploads/2019/07/free-to-choose_-a-personal-statement.pdf
  5. Maurice, S. C., & Thomas, C. R. (2002). Managerial economics: Foundations of business analysis and strategy (7th ed.). McGraw-Hill.
  6. https://students.aiu.edu/submissions/profiles/resources/onlineBook/i7T9W7_Managerial_Economics12.pdf
  7. Reisman, G. (1996). Capitalism: A treatise on economics. Jameson Books.
  8. https://www.amazon.in/Capitalism-Treatise-Economics-George-Reisman/dp/0915463733
  9. Simpson, J. (2005). Antitrust and the new economy: Microsoft and beyond. Routledge.
  10. https://www.amazon.in/Microsoft-Antitrust-New-Economy-Innovation/dp/1475775725
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