Monopoly power
With the negative connotation that usually surrounds the word "monopoly" I feel it is important to define what this means. Monopoly simply means that there is 1 seller. In more economic terms, it is a market structure with the absence of competition which allows one business to dominate the supply of a certain good or service. The question that usually follows is "Are monopolies good or bad?" The answer - it depends. By the definition above, technically we each have a monopoly over our own labor. Nobody else can provide the exact same type of work or ideas that we can because everybody is unique. This article will address some of the areas of contention for monopoly power.
Is it bad to have 1 store in very rural area? Not necessarily. It is better than having no stores at all. Is it bad to have only one utility company to provide electricity for a community? Without proper regulations in place, it can become an issue very quickly. There are two main types of monopolies that seem to be present in life, and they are what I will call the short-term monopolies and the long-term monopolies.
Short Term Monopolies
If an innovator comes on the scene, they are a monopoly because they have created a new idea and there is no competition against them yet. Then in time, a new market develops. For the period of time where no competition has yet arose, that company has the potential to enact the monopoly power that so many people find as "bad." It is important to point out that the only power they possess is the power that the consumer gives them.
An example is when smart phones hit the market and displaced the prevalence of flip phones. For a short period of time, iPhones had no competition against them in their particular market. Collectively, the world loved smart phones and the new capabilities open to them which inherently shows that the issue is not with monopolies but rather the power.
A company in this position, like Apple, could potentially increase prices and disregard the quality of service they are providing. Although, doing this would lead to that company's demise because it would open up the market for competition. Other companies could enter the market with similar products and lower prices and steal most of the profit from the previous business. It is important to remember that businesses and entrepreneurs only produce products they believe their consumers will find to be of value.
Positives from this include an inherent growth in innovation and competition. The downside is that consumers who want to have the newest and best products will have to spend more money to do so, even if the new innovation doesn't have all of the kinks worked out yet.
Long Term Monopolies
There are almost always options. It isn’t "this product" or "no product." We usually have variety. Then the question is: what power do these companies actually exert on us, if any, if we have the freedom of choice? From one perspective, the company isn't choosing to control the decisions and freedom of the customer, but because of the government implementing regulations, some industries are allowed to continue without any checks or balances from a competitor.
An example that we see in the present day would be utility companies. The government does not allow other companies to come in and offer similar services that the electric company or the water company offer because they know that people in a certain area need that service. Issues arise because those utility companies are unbound in how much they can charge consumers who need water or electricity to live. Consequential laws would need to be in place to prevent citizens from being overcharged. This is the premise of where the abuse of monopoly power comes in and what people are afraid of.
I would argue that consumers buy things based on whatever gives the most value for their dollar. Value is subject to what the consumer values. For example, it is like comparing chocolate versus vegetables. It is scary to think that in the future, the government may write laws that require people to eat healthier. This may be hypothetical, but the idea contradicts the freedom that people in the United States have. However, if the politicians collaborate with health insurance companies, for example, they could try to enact laws that prevent competition into certain food markets and, by doing so, control the populace. If people were forced to eat healthier, the farmers could charge much higher amounts and candy companies would lose revenue.
This type of scenario elicits questions on what is and is not ethical for the government to do. It could be ethical to require physicians to be licensed. On the other hand, it may not be ethical to protect large corporations by creating barriers for small business owners. Ultimately, it is not a market problem; it’s a regulation problem.
Entrepreneurship
To conclude these thoughts, I feel it is necessary to revert the attention back to who is behind a monopoly or business in the first place. Entrepreneurs create businesses. Sometimes they fail and sometimes they succeed. In the context of the phones, as previously mentioned, those flip phone companies didn’t do anything wrong; they just didn’t innovate soon enough.
Monopolist and innovators make things better for consumers. Even though there is a transition from an established product with an efficient market to a new product in an inefficient market, the consumers almost always reap the benefits in the end. It is a cycle. Consumers want bigger and better. Entrepreneurs find a way to make a good/service at a better quality and/or price! That company becomes a monopoly. Competition enters the market. Customers have more options for better products that they want!
Another things about entrepreneurs is that it is quite irrational to try and offer the exact same product that someone has already made. I think you can do the same thing as long as there is a different location or demographic that the product is intended to focus on, but otherwise there will not be much attention given. On the legal side, it is also very important to file for patents or other things to protect intellectual property. This does not necessarily restrict other companies from entering a market, but rather it forces them to innovate further if they want a chance to get customers. It’s not about how big the company is. It’s about how much value they produce.