Essay

Monopolies provide many problems that affect a country’s economic health. Monopolies are companies or individuals with exclusive possession or control of the supply or trade in a commodity or service. This gives monopolies near infinite power in that trade, which has a negative effect in the economy. This is not the only example of a monopoly having negative effects on the economy. This is again seen through the many powers that they have, each single power limits the economy in some negative way. Monopolies are so powerful that due to their abilities, which include the power of adjusting prices, no substitute goods, price discrimination, the effect on innovation and their effect on small businesses.

Many people are unsure of what monopolies are, or have not heard the phrase outside of the context of the board game, so the question is: what are monopolies and how are they formed? Monopolies are companies that control the market and are formed "when barriers prevent firms from entering a market that has a single supplier" (Textbook 156). This describes most monopolies as they are the one or dominating single supplier of a product in a market. This is the primary idea of monopolies, that they are the kings of their industry or of what they sell and no other company can stop them. One can tell if a company is a monopoly is when there is- "a market dominated by a single seller” (Textbook 156). That single seller is the monopoly; they are the ones that primarily sell to the market and where most consumers buy what they need for themselves. This leads to the powers that monopolies have, which will prove to be unbeneficial to the country.

Monopolies have a lot of power in general due to all the market power that they currently control. Monopolies have market power or "the ability to control prices and total market output" (Textbook 163). Market power is dangerous for those who are unable to gain or currently possess it. This is because monopolies have absolute market power, especially if the product that they sell has a niche in the market. Monopolies are able to gain market power through their many abilities, them being Economics of scale and price discrimination, two of their most important powers.

Monopolies are not beneficial to the economy in any way. Monopolies do not provide any sort of economic development. When hearing this for the first time some people might have been wondering, why? Well, this is all due to the powers that monopolies have. These powers are in no way beneficial to anyone except themselves. This is because they limit the growth of the economy. Monopolies have the power of and the control over the raising or lowering of prices. This barrier will restrict the economy greatly and since monopolies have a total control of prices- "They can and do choose what prices to charge for their products" (Sweezy 57). What this means is that monopolies have so much control of certain products that they could change the price at will. This is due to the fact that monopolies have no competition, and the price that the monopoly puts out will be the market price. This gives a lot of power to the monopolies because they could still get profits, even if it were given at a high price, some people would still be willing to buy the product. This gives the power to the monopolies, and this shows that it will difficult for it to get rid of and since “they can set any price they want; they will raise costs to consumers” (64). Monopolies, especially monopolies with important goods or products, have this grip on the buyer, forcing them to buy the items they need, even if they are unable to afford to buy it. Monopolies will continue to raise prices and do not face danger due to the grip that they have on consumers. Monopolies have near unlimited power in the area of raising and lowering their prices. If this unsupervised rising in prices continues, then it can and will eventually lead to inflation. Inflation is when the prices are so high no one can purchase anything, which would lead to a stop in the circulation of money. This damages the economy as, if no goods are being purchased, no money is circulated, and if no money is circulated, then the economy will be damaged.

Monopolies often have total control over the selling/trading of goods. This stems from one area, the lack of competition. Monopolies often have no competition that could compete with it. This is the opposite for most companies as- “Many companies compete in an open market to sell products that are similar but not identical.” (Textbook 158). Competition, especially in an open market is highly beneficial for the economy. This is due to the fact that competition promotes the creation of newer and better things. The creation of better products ends up creating better technology. This benefits the economy greatly as better products and better technology all help the economy with its growth and development. Yet, monopolies limit these things; monopolies limit competition; monopolies limit development; and all of these limitations do not help the growth of the economy.

Another barrier that monopolies create is its tendency to lower innovation. This limits the economy because innovation is a driving force within the economy and is detrimental to the health of an economy. Since monopolies have near total control over a product they have no competition thus, “Monopolies lose any incentive to innovate. They have no need to provide "new and improved" products” (Amadeo). This goes to show that not only do monopolies limit the economy by raising prices, but they also damage innovation. By damaging innovation, they damage the economy, because innovation is what one of the things that help drive the economy forward. Innovation is a very important cog in the great economic machine, without it, the economy could falter. As without, innovation, there is no advancement in technology. Innovation is the key to creating more products that can help society, it helps with the creation of new and better products, without it, the system could stand still and nothing of value will be added. This is another danger monopolies could present, limiting innovation.

Monopolies affect many other things other than the economy; one example of this is how monopolies limit small businesses. Monopolies have this power because of monopolies themselves -“are extremely large, they can afford to lower their prices to the point that no small business can compete” (McMullen). What this talks about is how monopolies, when large enough, will no longer have real competition. This is due to the fact that monopolies can get rid of “competition” of smaller business with relative ease. This endangers the economy because the competition is another important piece of the economy. Without the competition, innovation will stop, no new technologies will develop. Competition helps ensure the creation of better and newer products. These new products that were invented would have revolutionized the world, but were unable to due to the effect of monopolies. The lack of competition can result from the monopoly's power to change the prices of certain items. Their power to change the prices of items, allows them to get rid of competition by lowering the prices of their products. In fact, they can change it so low, lower than the other business could afford. This, in turn, runs the competing small business out of money. Monopolies to lose the incentive to create better products and “The lack of competition may cause the monopoly firm to produce inferior goods and services because they know the goods will sell” (Agarwal). This again shows the drastic effects of monopolies on innovation. The fact that there is no competition for monopolies can cause them to not create these newer and better products.

Now some people might be wondering that in order to get rid of a monopoly people should stop buying the product. Although this is a good idea on paper, this could not work out in real life due to the fact that many- "monopolies and their products so essential that they could easily charge prices that would yield much higher profits than are enjoyed" (Sweezy 64). What this means is that the products the monopolies control are so important, so needed that shutting down the monopoly will stop production of that needed product. Which will stop the production of the needed goods? This limits not only the economy by what could be done to stop the monopoly. Monopolies are like an empire, they are very difficult to take down and when an empire does fall, it will lead to many disastrous after effects that could affect the majority of the people. This goes to show what power monopolies truly have, that even shutting it down could lead the economy into a further downward spiral. This downward spiral leads to many damaging effects on the economy. These damaging effects of the economy can and will eventually lead to inflation, or the rise of prices in products.

Priced discrimination, like stated previously is one of the powers the monopolies have. Price discrimination is the selling items at different prices to a different people. Monopolies often do this to gain the maximum amount of profit from all consumers as "some customers who are not willing to pay the regular price and offer those customers a discount” (Textbook 163). Price discrimination is often the method used by monopolies to gain the most profit from each individual. Each different consumer has the ability to pay so much at any given point of time. In order to gain profit from each individual monopolies often give discounts to consumers who would normally be unable to afford it. This is just the first layer of price discrimination as there is another part that describes it as “Price discrimination can also mean that a company finds the customers who need the good the most and charges those more for that good." (Textbook 163). This is the power that monopolies hold over consumers and other businesses. Monopolies are able to adjust prices and give discounts to its consumers, which smaller businesses are unable to afford. Monopolies often use this tactic over their smaller competition.

Price discrimination is one of the most dangerous powers that monopolies have. Like stated earlier, “Monopolies can engage in price discrimination, which is charging different prices to different consumer groups” (Capozzi). This goes to show how much the economy is affected by these limitations that monopolies put out. Another form of limitation is price discrimination. This is a danger to the economy and stems from the monopoly's power to change and fix prices. This is because monopolies have been "able to divide consumers into two or more groups and charge a different price to each group” (textbook 75). This is very dangerous to the health of the economy. This is because with this power monopolies can choose how much to sell in a certain area. An example of this is, if area A gives more profit than area B, the monopoly could raise the price in area A and lower the selling price in area B. What this does is it limits the profit a certain area has, which could lead to unemployment. This will eventually lead to a downward spiral in the economy as if it were too continuously this is because “it can refuse to serve areas that have lower profit potential, which could further impoverish a region.” (Manuel). What this shows is the how drastic the effect of price discrimination is. Price discrimination can limit the economy greatly through its effects on the religion. It does this because it limits the amount of profit a community has. If there is low spending, the lower the economy a religion will have. This is one of the main reasons why monopolies have a drastic effect on the economy. Through the way, it limits growth in not only the economy but also the livelihood of others.

Many businesses have other competition, especially in an open market. They often do this “by making changes to existing products and services and lowering prices” (Manuel). What this does is it helps promote competition. Competition is a very important because consumers get the opportunity to pick and choose who to buy from. This ends up with the creation of newer and better products; money continues to circulate and results in a better economy. This shows that competition in the open market is important and therefore changing the prices of existing products is an important power to have. This is a power that monopolies also have, but abuse it.

Monopoles have another power that they would use to get a higher economic standing, economics of scale. Economics of scale is to be described as to "cause a producer's average cost to drop as production rises" (Textbook 157). What this tells is the fact that this is the main source of a monopoly’s power, without it monopolies would no longer have the ability to create market power for themselves. Economies of scale may also reduce variable costs per unit because of operational efficiencies and synergies. Economies of scale can arise in several areas within a large enterprise. While the benefits of this concept in areas such as production and purchasing are obvious, economies of scale can also impact areas like finance. For example, the largest companies often have a lower cost of capital than small firms because they can borrow at lower interest rates. As a result, economies of scale are often cited as a major rationale when two companies announce a merger or takeover.

Monopolies have a lot of power to influence the economy. Their influence though is primarily negative. This is seen through the way monopolies use their capabilities, which include economics of scale, no substitute goods, price discrimination, and many others. Limited substitution of goods limits to what the consumer could buy. Price discrimination can help impoverish a region. Monopolies bring down innovation and limit small businesses and competition. All of these do not help the economy, it only limits it. All of these reasons are why monopolies are dangerous to the economy and why the government has created so many acts to get rid of monopolies is they present a danger to the economy.