MARKET POWER AND THE MODERN CORPORATION

Market Power and the Modern Corporation

Market Power and the Modern Corporation

Introduction

In the last twenty-five years there has been a sharp upsurge in both corporate risk-taking as well as corporate demand for immunity from uncertainty. These giants have reshaped both Main Street and global commerce by practically eliminating all local mom and pop shops and forming massive multinational firms, such as the telecom companies throughout the world. Their size often gives them the power to dictate to the government as well as manipulate their suppliers (Borrus Ronald and Louis 2004 36-39). A prime example of this is Wal-Mart, a company selling millions of products at low prices. This corporation has so much buying power that they have often forced their suppliers into selling them products below cost.

Competition and Monopoly

To say that monopolies are against the interests of the consumer is not, in my view strictly true as there are some advantages that monopolies can offer consumers. Monopolies encourage economies of scale, which are the reductions in unit costs which a firm can enjoy due to them being large operators, due to this a firm may be able to keep its prices down for consumers as there overhead costs per unit will not be as high as it would have been within a smaller business. An example an economy of scale is supermarkets such as Sainsbury's or Tesco's, as due to them buying products in bulk, they can sell their products cheaper than the local grocery store as there costs per unit will be cheaper.

Another way in which monopolies may be of an advantage to the consumer is that there will be rationalisation of resources within the industry, this is another way that the company can cut their costs and hence perhaps cut the final cost of the product to the customer.

Another disadvantage of a monopoly is that the consumer has less variety of goods to choose from due to the lack of competition. A basic economic theory is that market structure, causes business conduct, which causes performance (Dugdale and Jones 2006 64). Market Structure is the number of buyers and sellers. The theory is that monopolistic market structure causes bad business conduct, which causes bad performance such as bad products. In a different market structure, with competition, it will cause lower prices and better products. This theory says that if we take a person, and put him in a monopoly, he will realize that he is a monopolist and become lazy. If the same person is put in a competitive industry, he will have to work better to produce the same income.

Monopolistic competition is a form of economic competition in which there are many producers and many consumers in a given market, consumers have clearly defined preferences, the goods and services are heterogeneous, and there is freedom of entry. It harbors some characteristics of monopoly as well as some of perfect competition. A monopoly is defined as a persistent market situation where there is only one ...