We’ve all heard the word monopoly before, especially playing the board game, but monopoly is so much more than a game. It is easy to roll a dice and gain $200 just by passing GO, but in the real world of monopoly there is so much more at play. Monopolies have happened and are continuing to happen today. So what does a monopoly mean anyway?

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What Are Monopolies?

Have you ever heard of the Boston Tea Party? That all started with a monopoly. At that time, the British Parliament gave favor to the British East India Company, which traded and supplied products, especially tea, to many people. The British Parliament had complete control

over the tea that was traded, including the prices and wages. When the taxes for tea were changed, the people were not happy. 

When there is a company or group of people that have complete control over a certain product, this is what is referred to as a monopoly. The word “monopoly” itself means “single sale,” which refers to a business that sells a specific product. 

There are many examples or instances throughout history of monopolies. Kingdoms, governments, businesses, and groups of people have all experienced, at some point, a kind of monopoly. Kings and queens have fought for their kingdoms to enforce their rule and reign. Battles have been fought over possession of lands and wealth. Large corporations have had to be put under jurisdiction because of the power and control that those companies enforced. 

Simply put, monopolies are businesses that accrue authority over products, but there is much more to it.

Types of Monopolies

Monopolies can start off unexpectedly and frequently by accident because there are circumstances that create an environment for growth, such as in a geographic monopoly. We’ll look into the four types of monopolies below. 

Type 1: Natural Monopoly

This type of monopoly happens naturally when it is most convenient for a company to create a product on its own without relying on other firms. These are often power companies, railroads, or even gas networks.

Type 2: Geographic Monopoly

When there is only one firm in an area that can offer access to a product then a geographic monopoly occurs. Often electricity, gas, and railroads can be geographic monopolies as well as natural monopolies because of access and location.

Type 3: Technological Monopoly

This occurs when there is a single establishment that controls the manufacturing of a particular good. This frequently starts with small companies, example being food industries. In-N-Out Burger is a current example of a technological monopoly.

Type 4: Government Monopoly 

Government monopolies occur when a corporation of government has complete control of a product and the competition of other companies is prohibited. This situation is created by the government itself. Petroleum and oil companies that are owned by government corporations have tight control and restrictions based on the holdings of the government.

Advantages and Disadvantages of Monopolies

Though firms can benefit from monopolization, there are both positive and negative factors that come with a corporation having complete possession of products.

Pros

  • Price stability. Because of product consistency and no competition, companies with a monopoly are able to stabilize prices.
  • Resources. Monopolies have the resources for research and improvement.
  • Growth. Monopolies have the capacity to enlarge and produce bigger economies.

Cons

  • Total price control. Monopolies may increase prices because of the inflexible demands of consumers.
  • Reduced consumer choice. With a monopoly comes less abundance of goods for purchasers.
  • Less motivation. Since there is no competition in a monopoly, there is little incentive for the firm to be well organized and efficient.
  • Less accountability. Companies that have a monopoly may take advantage of the extravagance of merchandise.

Monopolistic Competition

There are different aspects that affect monopolies, particularly monopolistic competition. There are two categories of competitions: perfect competition and imperfect competition.

Perfect Competition

There are five components to having perfect competition:

  1. Homogeneous products sold
  2. Equal share in the market
  3. Variety of firms
  4. Effortless entry and exit
  5. Easily accessed information

Within perfect competition, there is equality and stability within the income and output for all companies involved. The contest for consumers places all firms on equal ground with the gains of clients.

Imperfect Competition

There are four kinds of imperfect competition:

  1. Monopoly: There is no competition or opposition to a certain company.
  2. Monopolistic competition: Firms that all carry slightly different products, such as restaurants.
  3. Monopsony: This includes one market that has many sellers and can choose the sellers it would like (e.g. the coal industry).
  4. Oligopoly: A market with few firms, including auto industries.

Each of these imperfect competitions creates inequality between companies and therefore creates failures within corporations. What may advantage some, disadvantages others.

Is Monopolization a Choice?

Believe it or not, monopolization happens around us more than we think. Power companies, utilities, and day-to-day ventures lead us to use and be involved with monopolies every day without even having to think. We use these sources daily, whether we realize it or not. The resources that are given to us are so readily available and yet so controlled. It would be hard to avoid being involved with these corporations.

Examples of Monopolies and Success

AT&T

The Bell’s System, which later became known as the American Telephone and Telegraph Company (AT&T), started as the first telephone company in the world. In 1876, Alexander Graham Bell created the first telephone and, with help, created the company to go along with it. By 1899 they had become the largest and reportedly the best telephone service in the world. Because of this, the monopoly of the company had grown too large and in 1984, AT&T split into eight different companies, allowing other services to thrive and grow. Today we have many other telephone companies, including T-Mobile US Inc., Verizon Communications Inc. and so many more!

Standard Oil Company

Standard Oil Company, in 1870, became one of the largest companies in oil refining at its time. John D. Rockefeller, the founder of the company, quickly became very wealthy and was able to develop many trusts and business logistics that ended up helping many companies. In 1911, the

Standard Oil company broke into 34 different groups, many of which are still used today, including Marathon Petroleum, Exxon Mobil, Chevron, and several others.

Netflix

In 1997 in California, Netflix was born. Netflix started as a small company trying to bring movies into all homes easily. As we have seen, Netflix expanded quickly and highly exceeded the firm’s expectations. All homes started to watch and experience Netflix. Soon other companies follow, with Vudu, Amazon Movies, Disney Plus and lots of other easily accessed TV shows and movies on streaming platforms. It all started with a monopoly.

Is Monopolization Good or Bad?

Monopolization can start with a positive effect, but the inelasticity and consumption of one firm can be detrimental to other companies and even to the consumers themselves. As in many of the companies and sources that have been stated, monopolies can cause a chain reaction of many more ideas and companies to lead to greater inventions and catapult us into further progress.

However, just as important as it is to continue the progress and encourage growth of companies, it is equally critical to have equality among businesses and find the balance between control and consumption.

Questions You’ve Asked Us About

In 1933, Edward Hastings Chamberlin wrote a book called “The Theory of Monopolistic Competition” and coined the term.
Yes. On July 2, 1890, The Sherman Antitrust Act was the first act passed to prohibit monopolies within businesses and trusts.
Not always, but it is much more common for larger companies to monopolize.

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