Monopolies. What’s a monopoly? Have you ever played the game Monopoly? Its that board game you play that destroys families. The gist of it is you buy stuff, and extols that a great economy is one where you get rich. Its a fun game.
That said, its actually quite old, and based on a political point of view. Monopoly, the game at least, derives from ‘The Landlord’s Game’. This was an educational piece that educates players on something called Georgism. It is actually anti-monopoly, with its stated aim being to show ‘how rents enrich property owners and impoverish tenants’.
A lot of the time, you don’t even notice them, but monopolies are there, and we use them. Microsoft is the only company that makes Windows software, Northern runs the trains in Whiston, they have no competition. This has gotten me thinking, are monopolies good or bad?
Firstly, we define what monopolies are. The dictionary definition of a monopoly is: ‘The exclusive possession or control of the supply of or trade in a commodity or service’. As stated, Northern Trains, or Microsoft. They both provide a service that no one else is in that particular area. For example, I can only use Northern Rail. While I have choices for public transport, with buses, no luck with trains.
Secondly, as the last sentence has nicely segued us into, how are monopolies created? According to my research, there are two simple ways to define how they happen:
- A key resource is owned by the firm.
- The government gives a firm the exclusive right to produce a good.
- The costs of production make one producer more efficient than many, due to increasing returns to scale–“natural monopoly.”
For the first example, lets assume I have the patent for a new device. I own the patent, and the exclusive right to produce that device. As for the second example, if I run a business that provides a service, and the government lets me be the only person to run that service, then I will be the only person in that country to provide it. The best description for the last example would be the Mersey Toll Bridge. In short, that’s a monopoly.
The Pros and Cons of Monopolies
Let’s talk consumer. Typically, your average consumer looks for the best deal for a thing. That doesn’t mean the cheapest necessarily. When I purchase something, I usually get the second or third cheapest item, or I look for something good that is reduced. I sincerely believe most consumers are like that. People want to spend a little, but not lose quality. Shoes are a good example for this.
Monopolies can have advantages, Monopolies can thrive in loss making schemes, and don’t need to waste money on marketing. The argument is that the free market’s best regulator is the consumer. In summary, Monopolies can naturally exist because enough people chose that product over others, leaving them on top. At least in theory. In practice, however, not so much.
The consumer doesn’t see the research and development that the extra money generated from monopolies produced. There’s no choice if monopolies rise their prices either. You like it, or lump it. Internet Explorer is an example. Microsoft had that monopoly in the early 2000’s. Internet Explorer lost their monopoly to other browsers. In 2020, I think Google Chrome could be the same. Complacency can kill monopolies. More pressingly, monopolies created by ownership of a product can be damaging.
Look at DuPont, the world’s leading manufacturer of CFC’s. In summary, their patent on Freon gas was due to expire in 1979, meaning that Chlorofluorocarbon could be generically produced by anyone who wanted to make it. Initially, DuPont did fight to keep their patented and profitable product but changed in 1986, when they changed sides. Coincidentally, they had received new CFC patents in the interim time. As a result, DuPont still has that patent.
This post is not meant to be one to argue about climate change, but this is just one example of a company’s practice being used to detriment other companies, just to keep their monopoly. And other monopolies don’t do much better. Diamonds? Debeers and their past with blood diamonds. Coca Cola Company poisoning Indian water supplies in their bottling plants. The list goes on.
In short, I find that monopolies are problematic, and really only need exist for public utilities, such as coal, water, gas, and energy production. In business, monopolies do little for the consumer, and are damaging to society and economies, in the long term. Too big to fail? Perhaps. Too big to be indestructible? Not if I have anything to say about it.