Economics
Government Monopolies
Government monopolies refer to situations where the government has exclusive control over the production and distribution of a particular good or service. This can occur in industries deemed essential for public welfare, such as water or electricity. While intended to ensure universal access and regulate prices, government monopolies can also lead to inefficiencies and lack of innovation due to the absence of competition.
Written by Perlego with AI-assistance
Related key terms
1 of 5
8 Key excerpts on "Government Monopolies"
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. Monopolists typically produce fewer goods and sell them at a higher price than under perfect competition, resulting in abnormal and sustained profit. Monopolies can form naturally or through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors from entering the field or punishes competitors who do. In many jurisdictions, competition laws place specific restrictions on monopolies. Holding a dominant position or a monopoly in the market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore be met with legal sanctions. A government-granted monopoly or legal monopoly , by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks ____________________ WORLD TECHNOLOGIES ____________________ are all examples of government granted and enforced monopolies. The government may also reserve the venture for itself, thus forming a government monopoly. Market structures In economics, monopoly is a pivotal area to the study of market structures, which directly concerns normative aspects of economic competition, and sets the foundations for fields such as industrial organization and economics of regulation. There are four basic types of market structures under traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a market structure in which a single supplier produces and sells the product. If there is a single seller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a pure monopoly.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. Monopolists typically produce fewer goods and sell them at a higher price than under perfect competition, resulting in abnormal and sustained profit. Monopolies can form naturally or through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors from entering the field or punishes competitors who do. In many jurisdictions, competition laws place specific restrictions on monopolies. Holding a dominant position or a monopoly in the market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore be met with legal sanctions. A government-granted monopoly or legal monopoly , by contrast, is sanctioned by the state, often to provide an incentive to invest ____________________ WORLD TECHNOLOGIES ____________________ in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks are all examples of government granted and enforced monopolies. The government may also reserve the venture for itself, thus forming a government monopoly. Market structures In economics, monopoly is a pivotal area to the study of market structures, which directly concerns normative aspects of economic competition, and sets the foundations for fields such as industrial organization and economics of regulation. There are four basic types of market structures under traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a market structure in which a single supplier produces and sells the product. If there is a single seller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a pure monopoly.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Orange Apple(Publisher)
Regulation As with all monopolies, a monopolist who has gained his position through natural monopoly effects may engage in behavior that abuses his market position, which often leads to calls from consumers for government regulation. Government regulation may also come about at the request of a business hoping to enter a market otherwise dominated by a natural monopoly. Common arguments in favor of regulation include the desire to control market power, facilitate competition, promote investment or system expansion, or stabilize markets. In general, though, regulation occurs when the government believes that the operator, left to his own devices, would behave in a way that is contrary to the government's objectives. In some countries an early solution to this perceived problem was government provision of, for example, a utility service. However, this approach raised its own problems. Some governments used the state-provided utility services to pursue political agendas, as a source of cash flow for funding other government activities, or as a means of obtaining hard currency. These and other consequences of state provision of services often resulted in inefficiency and poor service quality. As a result, governments began to seek other solutions, namely regulation and providing services on a commercial basis, often through private participation. As a quid pro quo for accepting government oversight, private suppliers may be permitted some monopolistic returns, through stable prices or guaranteed through limited ____________________ WORLD TECHNOLOGIES ____________________ rates of return, and a reduced risk of long-term competition. For example, an electric utility may be allowed to sell electricity at price that gives it a 12% return on its capital investment. If not constrained by the public utility commission, the company would likely charge a far higher price and earn an abnormal profit on its capital.
eBook - PDFOrganisation of government, The
An introduction
- Gildenhuys JSH, Knipe A(Authors)
- 2013(Publication Date)
- Van Schaik Publishers(Publisher)
It remains undisputed that a monopolist possesses an undesirable amount of power over consumers or users of his goods or services. When the monopoly relates to goods or services absolutely essential for a balanced operation of the economic mar-ket, in order to develop the economic prosperity and social welfare of the individual, it would be reasonable to expect the monopolist to utilise his monopolistic economic power in a responsible manner. This means that he should utilise his power with regard to the personal interest of those people dependent on his products or services for their well-being. The danger always exists of the monopolist discontinuing essen-tial goods and services. A monopolist could also negatively influence a country’s econ-omy through his decision making and capital investment. In extreme cases he could match and challenge the power of government. There are, therefore, good reasons why monopolistic power over the supply of essential services should be prevented. The pragmatic argument in this regard is that, if this is not possible within the ambit DISTRIBUTION PROHIBITED TRACKED BY CUSTOS MEDIA TECHNOLOGIES of the free-market system, the supply of essential goods and services should be placed under the authority of a parastatal. ECONOMIC PLANNING AND DEVELOPMENT Economists struggled for many years with the problem of economic instability and how to obtain and maintain economic equilibrium. It was only after the appearance of the theories of John May-nard Keynes that economists attracted the atten-tion of politicians and governments politicised their countries’ economies. The need for a stable economy and the stimulation of economic devel-opment suddenly became important aspects of government policy.
eBook - PDFCoursebook for Economics
Private and Public Choice
- Richard Stroup, A. H. Studenmund, James D Gwartney(Authors)
- 2014(Publication Date)
- Academic Press(Publisher)
Indicate factors that complicate the ability of a real-world regulatory agency to set the ideal price. LEARNING THE MECHANICS-MULTIPLE CHOICE 1. Which of the following best defines a monopoly? a. a firm that is the sole producer of a product for which there are no good substitutes b. a firm that produces a differentiated product c. a firm that is licensed by the government d. a firm that has made profits over a long-run time period 2. Which of the following is a major economic criticism of monopoly as a source of economic inefficiency? a. Monopolists fail to expand output to the level where the consumer's valuation of the additional unit is just equal to its opportunity cost. b. Monopolists have little incentive to produce efficiently, because even the inefficient monopolists can be assured of economic profit. LEARNING THE MECHANICS—MULTIPLE CHOICE 223 c. Monopolists will always make profits, and profits are an indication that prices are too high. d. Monopolists have an unfair advantage since they can pur-chase inputs, including labor, at a lower price than com-petitive firms in other industries. 3. If economies of large-scale production were unimportant in an industry, imposition of the monopoly industrial structure on an otherwise purely competitive industry would result in: a. higher prices and a smaller industry output. b. higher prices and a larger industry output. c. lower prices and a larger industry output. d. lower prices and a smaller industry output. 4. Which of the following will not limit the likelihood that a regulatory agency will force a monopolist to charge the so-cially ideal price? a. The courts have been reluctant to allow regulatory agen-cies to set prices in monopolized industries. b. Neither the regulators nor the general public knows the demand and cost conditions faced by the monopolists.
- Michal S. Gal, Michal S. GAL(Authors)
- 2009(Publication Date)
- Harvard University Press(Publisher)
The monopolist has the power to deny access to its port to any manufacturer, and it can also charge supracompetitive and discriminatory prices for such access. 1 This situation creates a host of regulatory dilemmas. Should the law regulate the terms gov-erning access to the port? Should a different rule be applied if the port owner also operates a shipping service that competes with firms seek-ing access to its port? Should the regulatory policy change if the mo-nopoly is created by a government-imposed barrier to the erection of a competing port? These are some of the questions addressed in this chapter. Economic Characteristics of Natural Monopolies Natural monopolies are, as their name indicates, first and foremost monopolies: a single (mono) firm has dominant market power. They are, however, a special kind of monopoly: a “natural” one. The unifying characteristic of natural monopoly markets is the abil-ity of a single firm to provide a good or a service at a lower cost than a set of firms in the market. Natural monopolies may result from unique natural conditions such as those in the port example. They may also result from large internal economies of scale relative to the size of the market: owing to an inherent and persistent tendency of de-creasing long-run average unit costs over all or most of the extent of the market, no combination of several firms can produce the industry output as inexpensively as a single firm. The introduction of addi-tional suppliers thus creates a wasteful duplication of facilities and an increase in costs. 2 Natural monopolies may also arise in network in-dustries, in which the system becomes more valuable to a particu-lar user as the number of other users is increased. 3 Under such cir-cumstances, monopoly is accepted as the most appropriate industry structure. This is why such monopolies are termed “natural”: they re-sult from the natural conditions of the market.
eBook - PDFGovernment Failure versus Market Failure
Microeconomics Policy Research and Government Performance
- Clifford Winston(Author)
- 2007(Publication Date)
- Brookings Institution Press and AEI(Publisher)
I n the textbook model of perfect competition, firms earn a normal market rate of return in the long run. Of course, some firms may have superior technologies and management, which enable them to earn an above-normal rate of return for an indeter-minate length of time. But when a firm attempts to capture consumer sur-plus by engaging in illegal conduct to monopolize a market or by abusing its market power, government policy, as codified in the antitrust laws, can improve consumer welfare by stopping these actions and discouraging other firms from engaging in such behavior. A market’s technological characteristics may give rise to natural monop-oly, an unusual situation where social costs are minimized when one (well-behaved) firm serves the market. Competition under these conditions could therefore result in industrywide bankruptcy or a monopoly survivor. Because an unregulated monopolist is likely to extract consumer surplus at the expense of total welfare, government policy in the form of economic regulation can improve economic welfare by setting more efficient prices for the monopoly provider and preventing other firms from entering the market, albeit with adverse incentives for innovation. Optimal prices could be set either at marginal cost with a subsidy or tax that enables the regu-lated monopolist to earn a normal return or at Ramsey prices that satisfy a break-even constraint. (Under Ramsey pricing, the percentage markup of 3 Market Power: Antitrust Policy and Economic Regulation 13 prices above marginal cost is inversely related to consumers’ demand elas-ticities to minimize the welfare loss from inefficient substitution.) Although antitrust and economic regulation are motivated by different concerns, they share a common theme in that both seek to move a market closer to the competitive ideal.
eBook - PDF- Robert A. Brady(Author)
- 2019(Publication Date)
- Columbia University Press(Publisher)
Chapter VII ECONOMIC POLICIES: MONOPOLY, PROTECTION, PRIVILEGE RR-IHE LEADING economic resultant of the evolution of centralized X policy-forming power in business might simply be termed: Promotion of Monopoly. 1 Interpreted broadly, such an identifica- tion would be consistent with the records, yet it also greatly over- simplifies the picture. For present purposes, the better to show the changed sources, nature, and interconnections among the principal carriers of monopoly powers, analysis may be broken down to deal with the collusive practices of: the industrial, commercial, and financial giants in the corporate world; cartels, rings, pools, syndicates, and trade associations which may have taken on one or more of the several cartel functions; and trade associations, cartels, and similar federations of business interests when grouped or banded together into confederational, central, or "peak" associations ( Spitzenverbande). Most analyses of monopoly trends deal primarily or exclusively with the first of these three. The more theoretical treatments cen- ter around problems in the mechanics of price manipulation under circumstances showing some determinate departure from perfectly or purely competitive norms. 2 Other writers confine themselves to 1 Compare pp. 7-10, above. 2 The Federal Trade Commission, in its Report to the Temporary National Eco- nomic Committee, ". . . Re Monopolistic Practices in Industries" (TNEC Hearings, Part 5-A, p. 2305) summarized under this head all cases centered around "acts and practices [which] are .
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
