A Brief Definition of Monopoly

What is a monopoly? Is it a “fun” family board game that involves small shiny dogs and top hats battling one another for financial supremacy? Or is it a complicated but highly important part of economics that has consistently influenced human history for centuries? Alas, as much as I enjoy building hotels and sending my family members into table top bankruptcy, it cannot be denied that monopoly is much more than the weekend pastime we all know and love. A monopoly in economics terms: is an economic condition in which one business entity (corporation, guild, company, etc.) single handedly has complete control or ownership of a certain product or service. By having a monopoly on a specific product or service, the business entity has the ability to control the price for its own monetary benefit. Monopolies are a very important part of economics as they can be potentially detrimental to consumers in various different ways. For example if a company has a monopoly, by its very definition it would have no competitors to deal with in its business practices. This can harm the consumer because without competitors vying for a consumer’s business the company would have no incentive to create a first-rate product; which can lead to potentially faulty or poor quality merchandise.  Monopolies are also unfavorable to a consumer because without competitive pricing a company can charge ridiculous rates for their product and not have to worry about being undercut by other businesses.

Monopolies have been a major part of American business throughout the nation’s tumultuous history.  From the giants business colossuses of the early 20th century (I.e U.S Steel, American Tobacco, etc), to the new powerhouses of the business world in the information age (I.e Microsoft, Apple, etc.); American business history is glutted with different monopolies or companies that flirt dangerously with the prospect. However, businesses are prevented from becoming monopolies (most of the time) by government legislation such as the Sherman Antitrust Act. This congressional piece of legislature was originally passed in 1890 and sought to prevent large American companies from single handedly controlling a specific market, which in turn shields the consumer from abuse or being taken advantage of. The Sherman Antitrust Act was instrumental in breaking up many monopolies during the 20th century that were causing harm to the markets, consumers, and the larger economy. Eventually a few decades after congress passed the Sherman Antitrust act, the legislature passed the Clayton Act which put an even finer point on what specific business practices would force the government to take disciplinary measures.

Despite the definition of monopoly being aforementioned, it is important to make a distinction between an “unnatural monopoly” and a “natural monopoly”. A natural monopoly is essentially a unique situation in which a single business entity has the ability and resources to provide an entire market with their product or service at a satisfactory level. These natural monopolies are very different from “unnatural monopolies”, which normally exist due to shrewd or underhanded business practices. Natural monopolies however are a very rare occurrence in economics and business as in order for one company to meet the demands of the entire market they must have significant financial means and infrastructure. Some examples of natural monopolies in the American business world are utility companies, such as those that supply consumers with gas, electricity or water. These natural monopolies are permitted by the government despite anti-monopoly laws because they not only provide satisfactory service, but the immense financial investment it would take for new companies to enter the market is normally far too much to be feasible. However, if natural monopolies take advantage of their economic power, often times the government will respond with heavy regulation or even nationalizing the business itself.

Overall monopolies (both natural and unnatural) have been an important part of our nation’s history and continue to play a large and significant role in the economy and business world.

 

Advertisements

One thought on “A Brief Definition of Monopoly

  1. Pingback: Horizontal and Vertical Integration Business Strategies | HSTA 321 Media and Communications in American History

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s