A monopoly represents a market of goods or services represented by a single seller. Due to the complete lack of competition, it actively influences the volume of production and dictates the price of its product or service.
Why did monopolies appear?
The emergence of monopolies happened due to 5 major factors. Nowadays, any company can occupy the whole market exactly because of the influence of one of them, or due to their successful combination.
1. Exclusive control over the most important production resource. A vivid example of such a monopoly are companies that specialise on the extraction, bottling and sale of mineral water, petroleum or gold. This way, all income and resources are concentrated in one hand.
2. Cost reduction due to the increasing scale of production. This phenomenon is called the “scale effect”. Its essence is simple: while the enterprise increases the volume of production, the cost of the products steadily tends to decline. Indeed, large companies are more willing to make concessions to suppliers – monopoly banks would more often agree to revise interest on loans. In terms of unit of production, management and advertising are cheaper. As a result, small players lose the opportunity to compete with the big business, and so, a monopoly is born.
3. Monopoly law - the exclusive right to use an invention, industrial design, selection achievement. The document confirming exclusive rights is called a patent. They are usually given for a long period of time, and tus, no other small business would be able to benefit from these rights in the next 20 or 30 years.
4. State licenses or government privileges. The local authorities may issue permission to open some stores or cafes to a specific regional company,thus making it a monopolist. For example, in the Netherlands, the National Gambling Regulator extended the license to only one operator for many years – the state-owned company Nederlandse Loterij.
5 Specificity of the technological process. Sometimes, there’s only one communications company that can satisfy the demand for a particular service or product. This includes power lines, gas and water supply companies that become, this way, the market monopolists.
Types of monopolies in the global economy
- by ownership;
- by formation method;
- by lifespan;
- by field of activity;
- by competitor protection.
The advantages of monopolies
- uniform production standards – conscientious entrepreneurs think globally and act for the future. Many corporations have developed uniform quality standards that are monitored at every stage of production. As a result, the consumer no longer buys a "cat in a bag", and his ideas about the product are fully consistent with the reality;
- the possibility of optimizing production – the automated production lines are not accessible to small businesses. Therefore, only large players can satisfy the huge demand for standardized goods. They accelerate the production process, increase volumes, thereby avoiding a shortage. As a result, the price for the final consumer is being reduced ;
- participation in research and development – monopolies have every resource to positively influence the development of the industry: huge financial opportunities, the best specialists and even the protection of the state. They are the ones who make technological and scientific discoveries vital to the development of the industry.
Here are two real examples of monopolies that you surely know about:
The most famous monopoly trust was Standard Oil Company. John D. Rockefeller owned all the oil refineries in Ohio, in the 1890s. His monopoly allowed him to control the country’s price of oil. He was the one able to bully the railroad companies to charge him a lower price for transportation, because there was no other company to supply this demanded product.
Today, Google almost has a monopoly on the Internet search market; people use it for 90% of all searches, they tell each other to “Google” everything in order to find the needed information about anything in the world. Where did you find this article? We bet you did do that on Google!
Conclusion
The monopolist companies have a huge impact on the industry and the state economy as a whole. They might be destructive or favorable, depending on the good faith of the company's management and the way they value the specific demanded resources they sell.
