Monopoly
Omar Mohamud
Definition and Characteristics and Issues
- The exclusive possession or control of a supply or trade of a commodity or service.
- This market has only one seller
- The products sold have no close substitute
- There are significant barriers to getting in or out of this market
- Monopolies are price makers
- In 1890 the Sherman Antitrust Act outlawed monopolies in the US
Examples of Monopolies
US Steel
Founded by J.P. Morgan and Elbert H. Gary in 1901, the U.S. Steel Corporation incorporated three of the largest steel companies in the known world: Carnegie Steel Company, the Federal Steel Company, and the National Steel Company. Controlling as much as 67% of America’s steel production, the federal government sought to break the company up as early as 1911.
De Beers
De Beers, which has grown to encompass every aspect of the diamond trade, has a well-documented and well-established history of engaging in monopolistic practices. With its control over a majority of the diamond mines in South Africa, Namibia and Botswana, De Beers ships vast quantities of rough diamonds to a clearing house in London where they are individually graded, cataloged, and sorted.
American Telephone And Telegraph
In 1907, AT&T president Theodore Vail created a new mantra to guide the company: One Policy, One System, Universal Service. AT&T’s monopoly was further cemented in 1918 when the federal government nationalized the telecommunications industry.
Advantages and Disadvantages
Advantages
- Monopoly avoids duplication and hence wastage of resources.
- A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.
- Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly.
Disadvantages
- Poor level of service.
- No consumer sovereignty.
- Consumers may be charged high prices for low quality of goods and services.
29. Monopoly Basics