Monopoly Implications on Resource and Welfare Allocation

Monopoly Implications on Resource and Welfare Allocation

  • Submitted By: jpbm20
  • Date Submitted: 12/11/2008 7:19 PM
  • Category: Science
  • Words: 2132
  • Page: 9
  • Views: 2

Introduction; what is a monopoly?
Monopolies are often considered a market form in which consumers do not have access to alternative producers. This is in many cases true, but there still exist monopolies with several producer options. In these monopolies a firm or cartel of companies is in control of the majority of the market. One example is Microsoft apparent monopoly in the operating system market where the competition has practically no effect on the market what so ever. The emergence of a monopoly can vary greatly but they are in general one of two types, either a Natural monopoly or a Government imposed monopoly.

The natural monopoly normally appears if a producer controls a market through superior product or technology. It can also occur with greater efficiency through economies of scale which eliminates competition by means of pricing. Good examples of natural monopolies is the Water Distribution where one company can construct water pipeline networks at a lower average cost than if two companies where competing (The Economist 2008).

Government imposed monopolies is a form of monopoly where the government, through laws and regulations, hold the seized market through a government controlled company or allows private enterprises to control the good or service. They are known as state owned and coercive monopolies. The means to why the government feels obligated to force a monopoly onto a market vary, but a good example is the Swedish “Systembolaget” (State owned alcohol retailer) which is foremost a method to control drinking habits.

In this essay I will examine the consequences of monopolies, investigate possible solutions and finally look into the responsibilities of the government (its regulations and involvement).

Why do monopolies exist?
Monopolies will always seek to make huge profit at the cost of consumers. So why are companies not trying to enter the market? Since it exists a monopoly there is often factors that hinder the access...

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