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Intellections Discussion

Identifying A Monopoly: It's More Than Just Market Share

How often is a monopoly created by the government and how often is it the result of the free market?


monopolyies are always created by givernments

A government is itself a monopoly (it holds a monopoly on legal use of force for example). If you mean in the realm of economics, any service the government provides will tend to be a monopoly or pseudo-monopoly. If you dont like the service you are getting from the fire department, you can't simply use a competitive one.

By contrast, a truly free market should never yield a monopoly, as monopoly pricing would draw in lower priced competition, eliminating the monopoly. The cases where business monopolies are created are usually the result of large companies using coercive power to block competition, with a government either cooperating directly or choosing to turn a blind eye.

The government is all about monopoly. Aside from fire departments, take basic utility services for example. I have no choice in who I buy my water or electricity from. They are still private companies but they are basically under direct control of state and federal government from their rates (they must seek approval for rate increases and give reason why) to updating infrastructure (how many water main lines may be replaced per year and whether a temporary repair clamp must be used or a new system put in place). It's centrally planned, but a utility is closer to being a necessary service like a road or bridge that small, diverse groups of consumers would have a hard time paying for in a market free-for-all. If we're talking cars, groceries, outdoor power equipment, clothes, appliances, etc., I don't believe anyone could form a monopoly. Too many factors come into play. You have prices, designs, quality, presentation, consumer tastes and needs, on and on. I WILL buy motor oil from Wal Mart but I wouldn't let them service my car and I wouldn't buy a set of boots or a chainsaw from them. I WILL buy quality and pay the price where it counts but I save and skimp on other things. For instance, I can buy a Chinese made set of boots from Wal Mart for 30$ and they last 3 months or so before actual holes are worn into the soles. Wal Mart doesn't use the principle of quality product, they don't cater to that type of clientele. I can buy a 120$ pair of Chinese made steel toe boots from a mom and pop and they last 10 years (and Wal Mart wouldn't be able to reduce prices very much if it were a QUALITY product, the cost is what it is no matter China's "economic" advantage of supplying goods). Another example of that is comparing a Echo brand, Husqvarna brand, Stihl brand chainsaw. A 20" quality saw will cost 399$ whether it's made in Japan, Sweden, or Germany/America. They will all outlast and out perform a Poulan saw made in Mexico at a price of 299$. A Toyota car will always beat a GM car because GM is outsourcing parts and labor to Mexico (lower quality) while still trying to make some profit margin. One single store selling one line up of boots, saws, and cars is bound to fail. There is no way they could provide the service and diverse product to make every consumer happy. Wal Mart warehouse would have to quadruple in size to handle the diverse inventory and they would have to contract with 10 times as many manufacturers. Then you have locations, store layout, store policies, staffing, store experience, and so on. In the case of a hardware store, I get much better service and expertise at a mom and pop shop, whereas the "big box" store has incompetent staff with poor customer service skills and the pricing isn't much different most of the time. Given so many variables to think about, I don't believe the free market could produce a true, long term monopoly.

People like to think about WalMart as a monopoly and they are very stiff competition by independent grocers actually have a bigger share of the market in the SouthWest in the States. I don't know how you call yourself a monopoly in the grocery industry when you can't even beat the independents by a clear margin. The same goes for big union grocery stores in California. Independent, non union chain stores are pushing them out (mainly because of the influence and control that bureaucratic unions have over those long established store chains, it's kind of the same thing as government meddling in the market).

Governments may support and approve of monopolies as long as the monopoly item/service are in perceived to be in the best interest of the government and public.. Sometimes this is accomplished by leaving a monopoly alone. Sometimes this is accomplished by bargaining for a public good (ie the old Ma Bell monopoly, where rural telephone service was provided as the "price" of allowing Bell to be the sole provider of telephone services.) Regulated monopolies may be very useful, or they may be horribly mismanaged but continue due to purchased political cover.

In terms of the distribution of publicly created vs. naturally occurring monopolies... I don't know. I've got the impression that monopolies survive with the consent of governments, but are rarely created solely by government action.

Governments create monopolies when the cost of entering the market is too high for each service provider. For example, in the case of power, the cost of building a power plant and constructing power lines to customers by several different companies would be unworkable. Whereas, the cost of a single company doing so would be provide much lower energy costs to a community. Same thing for water and sewer service.

Because these services are currently not able to be provided under a free market system, it is necessary for government to monopolize, manage, and regulate these services. They can be conducted by government employees or contracted out to a sole source business under government oversight. In addition, because they are considered public utilities, they must be more responsive to their customers needs than a free market company that is solely concerned with market share.