Monopolies exist in markets when only one company can produce a particular good. While some monopolies are illegal, they exist in different contexts and ways today. For example, in many industries, one large corporation will make the majority of sales and profits on a particular product; however, a few little companies may sell the product as well (Though, they make little difference.). Other monopolies called pure monopolies exist when a company has complete control over the production and sales of a particular product. Monopolies do not have to worry about competition, because no one else sells said products. As a result, these companies can sell products for pretty much whatever they want. Many times, monopolies will set their quantities at the level where marginal cost is equal to marginal revenue.
What causes other companies not to enter the market?
There are a few common reasons why competition is unable to enter the market on said products. Some of these barriers may be legal restraints (i.e. USPS is the only mail carrier allowed to deliver first class mail), where a law prevents others from entering the market to sell the particular product.
Another reason could be a patent. This gives a person permission to produce and sell a product for a given period of time. Once the patent is up, other new inventions can be produced. One example of this includes Pfizer in developing and producing Viagra.
The last limitation is a natural barrier. Perhaps, companies simply cannot afford to enter a particular market, because they did not enter when it was available. As a result, some companies may have a natural monopoly.
Should monopolies be made all together illegal?
Some economists argue that the government should not have any hand in the economy whatsoever and just let the economy run its natural course. Others, though they tend to agree that limited government intervention is preferable, feel that some monopolies should be and must be shut down for the benefit of the economy. In many cases, competition laws and price discrimination place restrictions on markets, and as a result, monopoly developments are rare.
When corporations reach a certain size and retain the majority of a market, fingers are often pointed in accusations of monopolizing a market. The biggest example across the board seems to be Microsoft. This company has been accused numerous times over the past few decades. Of course, many operating systems exist today, but for a long time, Microsoft seemed to be the only one.
Disadvantages of markets, where monopolies exist, include lower quality level of products, ridiculous wait times or terrible customer service, and high prices. Plus, if there is no competition, there’s no reason for the company monopolizing the market to improve the product or add new and better additions.
Some modern-day monopolies in existence are the National Football League (NFL), the Major Baseball League (MBL), and DeBeers (which controls the majority of the world’s diamonds). Others include the Army and Air Force Exchange Service (AAFES) and GameStop.
Overall, monopolies are pretty rare, although, some exist because of loopholes in economic laws and the timing of various elements. The important thing is for consumers to speak out against developing monopolies or monopolies, which promote unethical business practices. In these cases, monopolies definitely need to be regulated and possibly dissolved.