Effects of monopolies in the Usa economy Essay Example for Free

do of monopolies in the regular army economy EssayThe concept of a monopoly is largely misunderstood and the mere mention of the term evokes divide of emotions that touch clear judgment almost impossible. The standard scotch and social case for or against noncompetitive linees is no longer straightforward. According to Mankiw (2009) a monopoly is defined as a food securities industry structure characterized by a single seller of a unique product with no close substitutes1. When a business dominates a grocery, it becomes a monopoly by virtue of its power.A company (or a group of affiliated companies) is considered to hold a dominant position in a exceptional market if it exerts a decisive submit everywhere the general conditions of trade in that market or corporation restrict access to that market for early(a) businesses. Markets keep changing with the times and so are the conditions in which businesses must operate heedless of whether they feel any noniceable market power. 2 Monopolies have raised significantly in transforming the US economy to be the go acrossing economy knowledge domainwide.This is largely due to the benefits arising from legal monopolies created by the Patent and copyrights jurisprudence. Monopolies are in moment powerful tools of spurring economic growth in the US. How do monopolies arise? Two major conditions contribute to formation of a monopolistic trade environment. A product which has no close substitutes faces no challenger thus its producer becomes a monopolist. Exclusive monomania of a key resource whitethorn lead to creation of a monopoly. A classical case is exemplified by the control of the computer hardware, market by International Business Machines (IBM) for effectively forty geezerhood.Due to its market dominance over the hardware, institutions that in moveed to initiate a project had to do so with IBM. (Rise in Monopolies, n. d. ) Monopolies also develop where there are barriers to market en try. These barriers are obstacles that spend a penny it catchy or impossible for any potential competitors to penetrate a particular market. Such barriers could either be natural or legal constraints that protect a business firm from competitors. A natural monopoly arises when technology for producing a product enables one firm to meet the entire market study at a lower price than two or more firms could.Legal monopolies develop in a market in which argument and entry are restricted by the concentration of ownership of a natural resource or by the granting of a public franchise, government license, patent, or copyright. When Microsoft license an operating registerment from Seattle Computer Company in 1981 their explosion into dominance began. Microsofts dominance over the operating systems enabled it to diversify into producing spreadsheets and word processors. These new software were made such that they worked best with its operating system hence tightening Microsofts gr ip of the market.(Mises,1981, p. 86). Certain circumstances do lead to creation of near monopolies or oligopolies. An oligopoly arises when a small number of firms have relatively large market shares. Though separately firm is independent, interdependence whitethorn arise whereby one firms actions influence the acquire of the other firms. In addition, when a small number of firms share a market, they can collude to increase their profits by forming a cartel and acting corresponding a monopoly. inattention monopolies may arise when there is lack of sufficient acquaintance or interest on a particular subject3.A firm may end up being a small monopoly by having an upper hand when it comes to accessing knowledge on a particular trade. A case in point is the sole garbage lay in company in Taos. Are monopolies beneficial or detrimental to the US economy? Monopolies have been in worldly concern by means ofout business history and most(prenominal) corporations have achieved complet e dominance over a wide array of industries. The monopolies have been accuse of charging exorbitant prices to earn super profits with little strike to consumer welfare .A fundamental question is Are these business practices ethical? (Haas, 2006) Citizens of The United States value argument in their market system. Competition not besides keeps prices low and encourages production of new products to the market place but also fosters asylums that help to bring down the salute of doing business. Contrary to popular belief, monopolies are not illegal in the United States . Indeed a government-created monopoly is exemplified by the patent and copyright law. This is a law that governs intellectual property.A pharmaceutical company that develops an original drug can patent it for several years during which it enjoys exclusive production rights. Such a patent offers the producer monopoly status where the producer can charge higher prices and earn strikinger profits. On the other hand, such a law is beneficial because it encourages innovation and consecutive research within pharmaceutical companies to develop new and more superior products. Moreover only big monopolies with significant market power have the capacity to carry out research and study on their products.This leads to innovation since new knowledge is applied to the production process. The nearly twenty year monopoly enjoyed by Microsoft in manufacturing of its computer software has not only ensured harmony and uniformity in computer software but also facilitated accessibility of computers by the greater population. Consequently, this has lead to the information technology revolution characterized by easier access to information by US citizens and thus the US economy remains to be the worlds superpower. It is through such innovations that new channels of business for typesetters case e-commerce have sp wearg up .Citizens can now buy items and find good deals through iPods and other innovative devices arising from research and development by giant firms. From a different perspective, in the absence of real competition a monopolist may lack an incentive to invest in new ideas or consider consumer welfare. Monopolies may in trustworthy instances offer inferior services or products. Amtrak enjoys a monopoly status in the passenger rail system. It has been criticized by the piece for failing to develop hybrid high-speed locomotives that save on energy consumption as easily as failing to service approximately of its tracks that remain to be under- par conditions.Donald,D (1997) suggests that monopolization can be advantageous to the consumers by change cheaper production due to economies of ordered series. A monopolist may manage to contain lower marginal costs due to economies of scale and the advantages of division of labor . Consequently this translates into higher sidetrack at lower prices than would have been possible under competitive conditions. Such economies of scale also tend to guarantee uniform output and harmony in product characteristics.The benefits arising from economies of scale may be eat at due to X inefficiencies4. Monopolistic organizations cut on expenses that would have been wrought about by competition and by so doing they deny business opportunities to various support organizations like advertising and public dealing firms. This has the net effect of creating unequal wealth distribution since vast wealth ends up in the detention of a few privates. Another issue to ponder over is what to make of those monopolies that have come into existence simply by being kick downstairs than all the rest.A case in point is the Wal-Mart stores which has been accused of running small shop-owners out of business in locations where it opened stores due to its retailing efficiency. Sometimes a market dominated by few firms/sellers does not always indicate the absence of competition, it can consider the success of leading firms in providing bet ter quality products, more efficiently, than their smaller rivals. Some monopolies throttle the creativeness of enterprises and are a detriment in certain sectors. A classical example is the United States postal Service that has continuously offered US citizens poor quality services at the expense of taxpayers.This sector demand to undergo restructuring in order to give market access to potential investors and thus improve on service delivery to the citizens. Inefficient production firms that enjoy monopoly status in essence fail to make optimal use of their scarce resources and in such circumstances, government intervention may be warranted through application of competition policy of market liberalization. A major preposition that makes monopoly undesirable is that monopoly leads to a failure in the market mechanism because the monopoly price is generally higher than both the marginal and average costs.This in act upon results in the monopolist offering an exploitative price to the consumer since this price is above the cost of resources used to make the product. Such actions restrict free trade and consequently the consumers needs and wants are not properly cheery because the product is being under-consumed. Some monopolies especially in the pharmaceutical industry have been criticized for monopolizing drugs for certain ailments like cancer and Aids though the patent laws. Such giant pharmaceutical companies have been accused of kind in profiteering schemes at the detriment of the welfare of the American citizens.The higher average cost of production that may arise if there are inefficiencies in production also means that the firm is not qualification optimum use of its scarce resources. This may necessitate some form of government intervention for example by market liberalization in order scale down the monopoly dominance. Government created monopolies in sectors that regard enormous capital outlays have ensured consumers have access to certain cruc ial services which would not have been possible were such ventures to be entrust solely to private investors.These state-run monopolies are service providers whose main motif is not profit but to cater for the welfare of the citizens5. Their services are crucial in providing enabling environments for the citizens to explore and achieve their goals in life. Monopolies arising from merges and restructuring can operate more efficiently and thus provide better quality services to the citizens. The mergers eliminate several layers of bureaucracy and create efficient standardized processes. 6However it is worth noting that some mergers may deprive consumers the benefit of choice.Conclusion Monopolies apparently exist because the quantity demanded in the market is entirely satisfied by the monopoly (Peter 2003). The widespread view that the monopolist can fix prices at will is nonsensical because the laws determining monopoly prices are the same as those which determine other prices. A monopolist can best serve its interests by separating consumers into classes based on their purchasing power. A company that controls all aspects of a expanse can ensure harmony and uniformity.Microsoft offers an outstanding example on this front whereby the greatest proportion of computers run on their software thus enhancing compatibility. Monopolies have resulted in great innovations and immense growth in several sectors of the economy while in others they have been detrimental for example through collapse of small enterprises or delivery of poor quality services. Monopolies are both beneficial and detrimental to the economy and a cost benefit analysis needs to be done to ascertain the role played by individual monopolies in any particular market.This demands a precise definition of what actually constitutes a market because in almost every industry, the market is highly segmented into different products. Globalization has made it very difficult to ascertain the real effects of monopoly power in any particular market more so due to the effects of the rapidly increasing competition. With proper regulation, monopolies have not only positively contributed towards economic progress but they also provided a stimulus for liberalization of major market segments.Liberalization in return has opened up many channels of investment and the net effect has been a great expansion in available business opportunities on a global scale.References Donald,D. (1997). Microeconomics The compendium of Prices and Markets . New York, Oxford University Press. Haas,W. (2009) Microeconomics The Effects of Monopolies . Retrieved Nov. 17, 2009, from http//www. associatedcontent. com/article/85453/microeconomics_the_effect_of_monopolies_pg3_pg3. html? cat=3, Mankiw,N. G(2009). Principles of Microeconomics South Western Cengage Learning Mises,V. L. (1981).Socialism An Economic and Sociological Analysis Indianapolis Liberty Fund. Peter,P. (2003)Bullying the Monopoly Arflington VA Securi ty Management. .47, 12 Rise of monopolies. Retrieved Nov. 17, 2009, from http//cse. stanford. edu/class/cs201/projects-95-96/corporate-monopolies/development. html 1 This applies largely to minute monopoly where by the monopoly has total control over output and prices within a free and fair market with near perfect competition.2 A common assumption is that a company is said to dominate a market if it controls over 65% of that market. As a rule of thumb, if a company gains control of 30 % of a market, it poses the risk of acquiring monopoly status but this depends on the size of other competitors in the market. 3 Default monopoly is in reference to a hypothesis advanced by Mankiw in an effort to explain how some non-convectional monopolies come into existence. 4 X inefficiency is a term first coined by Harvey Libenstein.It refers to the production losses incurred by monopolies arising from economies of scale and lack of incentives to be innovative. 5 The services of some of the sta te run monopolies are crucial in reenforcement the American citizens carry out their daily duties and thus their output in all spheres of their lives is thought to be enhanced by such enabling environments 6 Mergers create more stable organizations that can guarantee continuous output of quality services and for an extended period of time unlike smaller companies that can be under constant threat by negative market threats.