You are on page 1of 2

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