MONOPOLY

Monopoly, when an individual or enterprise has such control over a particular product or service to be able to decide the terms on which others may use it. There is no economic competition for the good or service and no suitable substitutes. It can also be that a firm gains greater market share than is logical in a situation of 'fair' competition.

In a famous board game, players compete to buy up individual properties. They can charge rent to increase their wealth, consolidate their portfolios to get complete streets, and eventually one player ends up with almost everything and the game is over. The longest recorded game went on for more than two months. The tendency for one player to maximise their dominant position is ever present in the wider business world too. Unlike the board game, however, in the real world it is in nobody's long-term interest for the game to actually end. Monopolies are not always a bad thing. In some sectors they may be unavoidable. The provision of an uninterrupted supply of water, gas or electricity would be much more difficult where a whole series of operators were involved. Indeed, monopolies are attractive for companies in the short term. Controlling the market means you can control the price. The problem is that if you can charge what you like, there’s little incentive to try harder and improve the quality you offer. This can only have negative effects for the consumer. Companies become less efficient over the longer term and, as competitors are driven out of the market, economies become less dynamic, with effects for society as a whole. A collective form of monopoly, the cartel, allows more players to operate but the price is fixed by mutual agreement. The effect for consumers is the same - prices remain artificially high (or artificially low). Other practices are available to the cartel such as agreeing in advance who will bid for contracts or keeping goods off the market. Cartels only usually last as long as mutual self interest remains higher than distrust of the other members’ intentions. In the longer term, then, monopolies have to be controlled because they prevent, distort or restrict free competition. Moves to outlaw such practices started more than a century ago in USA and took hold more recently inside the European Union. In the last decade Russia and China have passed their versions of ‘anti-trust’ laws. No sector is exempt from abuse: over resources like salt, tobacco, oil or diamonds; in transport where airlines or cruise ship operators fix ticket prices; and increasingly in new technologies. Mergers have recently become a growing area of concern. In Britain, any proposed merger which gives a company more than 25% market share is automatically investigated. In fact investigations may now cover whole industries, not just individual

firms. Governments have given themselves strong powers to regulate potential monopolies. They can prevent a merger from proceeding, or divest a company of part of its business. Heavy fines can be imposed - EU law says that they can amount to 10% of a firm’s annual revenue. In the UK, company directors can face up to five years in prison for forming cartels. Consumers in US can even claim damages from manufacturers rather than retailers for unfairly high prices. The object of all this to ensure that the game goes on. If harm cannot be demonstrated to consumers, businesses must remain free to compete