MONOPOLY EFFECT

Monopoly Effect on Economy



Monopoly Effect on Economy

Introduction

The monopoly is a form of market where a single vendor offers a product or service for which there are no close substitutes (natural monopoly), or operates in protected area. It comes as evidence that those who put it into practice have the exclusive management of its sales. A monopoly may arise as a result of:

Exclusive control of key inputs.

Economies of scale: the cost of production makes the best there is only one manufacturer instead of a multitude of different manufacturers. This is due to the fact that the curve for that individual producer's long-term average cost is decreasing, so an increase in production costs over more units diluting the product reduces the average incidence and an example is the case of railroads or highways.

Patents.

Governmental licenses.

Monopolies are often characterized according to the circumstances from which they originate. Among the major categories have monopolies that are the result of laws or regulations (legal monopolies), monopolies which originate from the cost structure of a given production system (natural monopoly). Proponents of liberalism in the economy argue that a more fundamental classification should distinguish between monopolies that are born and thrive on a violation of the principles of free market (coercive monopoly) and those that remain due to the superiority of such product or service than of potential competitors.

Growth of Monopoly

The monopoly has long been privileged to competition for the profits they allowed money and logistics. The government granted monopolies, and for a period determined to some national retail companies, which then obtained as appropriate the monopoly of trade in certain products or parts with the monopoly. Thus the colonial mercantilism aimed to obtain a monopoly of trade with certain regions of the world for the national metropolis, excluding de facto the market the other European powers (Peltzman, 1976).

Among the most famous examples is the East India Company, often gathering of small companies merged under the auspices of the State to reduce competition, increase profits and improve business efficiency and colonial military their fleets. The best known are the Dutch East India Company (VOC), and the British East India Company vying for control of trade in Southeast Asia. The search of the monopoly was essential in achieving large profits, and companies did not hesitate to destroy potentially rival indigenous plantations to ensure the absence of competition.

In Europe, the VOC's monopoly transmitted to a merchant or a trustee in local merchant. The sales contract could imply the absence of any competing purchaser of the trustee, and no new sale of the same product for a given period so that the trustee retains thereafter, a monopoly in local markets (Peltzman, 1976). Monopolies were also a way to put under the control of certain state production. At the industrial factories of the time of Colbert is one example. Criticism of monopoly begins with the emergence of liberal economic ideas that feel unfair and harmful to consumers and economic vitality. This criticism led to the end of the ...