Monopoly Control

Monopoly Control

Monopoly, the control by a single seller of a commodity or service. In the real world all commodities and services compete with others, �0 few sellers are 'perfect' monopolists. In practice, therefore, monopoly refers to a seller of a commodity or service with no near substitutes. There is never (or rarely) either complete or negligible monopoly because almost every producer or seller has some degree of monopoly, but usually only a small one. There are few absolute monopolists but there is much monopolistic or 'imperfect' competition.

Monopolies have several origins. First, the law. The Tudors and Stuarts gave monopolies partly to fill the royal purse. In recent times -monopolies have been given to sound broadcasting, the railways and the coal-mines. But they are not absolute: private competition has been allowed to the first two (Independent Television, road transport), and nationalized coal faces competition from oil and atomic power.

Patents and copyrights also grant a high degree of monopoly; the question for economists is whether the protection they give from competition is necessary to stimulate research and invention. Statutory Marketing Boards, for example, in hops, eggs and milk, established to promote 'orderly marketing', also create monopoly. Import tariffs, quotas and other devices protect home producers from overseas competition and help them to build domestic monopolies. Some economists have argued therefore that 'the tariff is the mother of the trust'. Others have maintained that 'the trust is the mother of the tariff', i.e. that highly organized industries have induced government s to shield them by tariffs: this has happened, but in a competitive free economy it cannot for long seriously frustrate consumers' preferences and in a politically free society it cannot for long seriously frustrate the electors' preferences.

The device of the joint-stock company can be used (as in holding companies) to control a large part of an industry. The law has permitted practices which have been used to restrict competition and build up monopolies.

Secondly, natural conditions can produce monopoly. The scarcity of diamonds, potash and nickel gives the firms mining and processing them a natural protection against competition. Industries requiring very large equipment have few firms or units, normally one in each different market. These are called 'public utilities' (a misleading name if it suggests that other industries no less basic to human life, such as bread-making, are not public utilities) water, gas, electricity, transport. If economies of scale are very large, the number of units in an industry is again likely to be small, as in steel, chemicals. Firms producing commodities that are perishable or bulky in relation to their selling price are ' protected' from competition in local markets by high transport costs from distant producers, e.g. bread, beer, soft drinks, but modem transport and packaging have enabled large firms to penetrate into local markets.

Thirdly, firms can generate some degree of monopoly by using advertising, branding, packaging and other devices to persuade consumers that their product is different from others of the same kind.

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