Table of Contents
What is a Monopoly?
A monopoly is an economics and business term referring to a market with one seller (a.k.a the monopolist) but many buyers. This means that the monopolist (can be one company/individual, cartel, or colluding group) has grown large enough to own all or nearly all of the goods, supplies, commodities, infrastructure, and assets for a particular product or a service.
That’s why, in the board game Monopoly, you try to eliminate the competition in order to have full control of the real estate market.
DID YOU KNOW?
An oligopoly refers to a market with two or more sellers and many buyers. Each seller must have enough market share for their decisions to significantly affect rivals, but not enough to take full control, or monopolize, the market.
The potential dangers of economic monopolies to the public are clear. When you have a single seller for an essential product (e.g. medicine), those who need it do not have any other options but to buy the product from the monopolist. That means, without cost controls and competition, monopolies can engage in price fixing in order to boost profits as much as they can without pricing themselves out of the market. Consumers who need that medicine might not be able to afford regular doses. But we’ll go deeper into the dangers of monopolies as we go through the article.
The Zero Theft Movement strives to achieve an ethical economy that’s productive for the public and businesses. That takes bringing the public together to collectively eliminate rigged economic behavior, such as unnatural monopolies.
Monopoly vs Perfect Competition
A perfectly competitive market features a large number of sellers and buyers. No individual buyer or seller has enough influence to control the price of a product or service. As we have discussed in the introduction, a monopolist has significant say when it comes to pricing the commodity.
Monopolies also have control over the supply, so the quantity sold is usually less than in a perfectly competitive market. Furthermore, without competition, the monopolist does not necessarily need to focus on innovation and productivity, enabling them to get complacent and dedicate time to rent-seeking.
Prices (y-axis) and quantities (x-axis) for perfect competition vs monopoly
From Seoul National University
Ultimately, market competition often benefits the public. Supply and prices cannot be controlled by a single source. And companies must continue growing otherwise they will fall behind. Doesn’t that just sound like what a business should be doing anyway?
Simply put, the monopolist is a ‘price maker,’ the perfectly competitive firm a ‘price taker.’
In 2018, the Organization for Petroleum Exporting Countries (OPEC) held nearly 80% of all oil reserves in the world. Many have debated whether OPEC operates as a cartel (groups formally colluding). See whether the Zero Theft community has found strong evidence that the U.S. public is getting ripped off.
Making an Economic Monopoly
So, how does a monopoly actually come to be?
The specifics will differ depending on the industry, but monopolies can often share similar barriers to entry. Barriers to entry refer to the obstacles new market entrants face. It’s important to realize that all businesses will face some natural obstacles (e.g. costs required to set up the business). The unethical and potentially illegal ones are some of the artificial barriers, which incumbents can intentionally establish to prevent competition.
Three main types of monopolies exist:
Government and government-granted monopolies
Sometimes the government will create its own monopoly or grant full control of a market to a private business. The government will often create a monopoly if it has good reason to believe that costs would become prohibitive for consumers and businesses with freer competition.
Take the case of public utilities (water, electric, gas, etc.). The costs for the public and businesses would be much higher if individual companies had to install their own pipes for every single one of their customers. The U.S. government has monopolized these markets in order to provide cost-efficient services to consumers.
As it pertains to government-granted monopolies, take the case of patents in the pharmaceutical industry. These grants allow companies to control drug prices for all their patented treatments. In fairness, businesses should be able to reap the rewards for their innovation. But danger exists if they start abusing those protections to prevent ethical competition. One example of such behavior is pay-for-delay deals, where brand name drug manufacturers compensate generic manufacturers to postpone the release of a biosimilar medication.
Natural Monopoly
Natural monopolies can form because of the high barriers to entry that come with the market. For example, it can take a lot of money and effort to just set up a business. Maybe there’s a scarcity in the resources and raw materials. Or perhaps, there’s not enough demand for multiple competitors to co-exist in a market.
Natural monopolies tend not to involve questionable behavior. The realities of the market dictate how many companies can thrive. For an example of a natural monopoly, you can just look back to the case of public utility.
There is, however, a particular contentious case that involves the U.S. broadband network. Turns out, internet service providers (ISPs) have a government-granted monopoly over infrastructure (e.g. utility poles). Internet providers were granted this control because installing the infrastructure across the nation expectedly costs a great deal. This monopoly became a hot button issue when ISPs did not allow Google Fiber to use existing infrastructure to provide another option for high-speed internet.
According to a report by the Institute for Local Self-Reliance, “Most Americans have no real choice in internet providers.”
Could Google Fiber have opened up the market and improved service for the public? Was it blocked by corporations or local governments? See what the ZT community has discovered…
‘Artificial’ or ‘Man-made’ Monopoly
An artificial monopoly refers to when a firm creates barriers to entry in order to drive out competition. These kinds of monopolies do not occur so often, just because many of the strategies involve a great deal of risk.
Predatory pricing serves as a risky way that businesses can create an artificial monopoly. This strategy involves the ‘predator’ keeping prices prohibitively low in order to put pricing pressure on competitors. If rivals cannot survive long enough with much lower profits, the predator can eventually gain market control and then jack up prices.
The government broke up the Standard Oil Company and Trust in the early 1900s, fearing growing monopolies and corporatocratic control. Scholars have since questioned whether the Standard Oil truly engaged in predatory pricing, evidencing the rarity of actual artificial monopolies.
Antitrust Protections
Antitrust laws and regulations came about just before the Standard Oil case, just before and during the Progressive Era (1891-1916). The government established these sweeping reforms to prevent monopolies, and thus protect the economic and public welfare.
In 1890, Congress passed the Sherman Antitrust Act with resounding support from both political parties. The legislation marked the first ever government effort to prevent monopolies in the U.S. Congress, in 1914, passed two supplementary legislative pieces wherein actual examples of antitrust violations, as well as rules on mergers, got established.
Laws and regulations alone do not always prevent bad actors from trying to form a monopoly. The government needed to create a regulatory agency to properly regulate industries and enforce those antitrust laws. Thus came the Federal Trade Commission (FTC). The FTC works in tandem with the Antitrust Division of the Department of Justice (DOJ).
The Dangers of Unethical Monopolies
Economic monopolies can cause considerable damages to the public and the economy. Exorbitant costs for consumers, complacent businesses, substandard products and services, and corrupt behavior. That’s what you can expect in many monopolistic markets.
The seriousness of this can extend beyond economics and even white-collar crime in certain cases. Think back to the introduction of this article. What if the monopolized commodity was a life-saving treatment such as insulin? Americans have died because they didn’t have enough money to pay the high costs of insulin.
S. Vincent Rajkumar, a MD for the Mayo Clinic, writes, “Insulin pricing in the United States is the consequence of the exact opposite of a free market: extended monopoly on a lifesaving product in which prices can be increased at will, taking advantage of regulatory and legal restrictions on market entry and importation.”
Economic monopolies can cause much more than just economic harm to the public, and it’s about time we did something about them.
On the Zero Theft Movement’s voting platform, citizens author theft proposals, and the community decides whether that investigation has convincingly proven (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The ZTM community knows that many businesses, including some corporations, act ethically. We are trying to identify and expose crony capitalism and hold the bad actors accountable. The corrupt corporations, lobbyists, and government officials involved. That way, good people and businesses can properly thrive and enjoy the piece of the piece they’re all due.
Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.