Insert Surname Here 2
Monopoliesand Oligopolies Should Be Unlawful
Competitionin the market is encouraged due to its many advantages. However,there exist a single or few suppliers of a given service or good. Ina nutshell, Monopolyis that excessive possession/control of trade and supply in any givengoods or services. On the other hand, Oligopolyis referred to, as the existence of limited competition in the marketdue to the existence of reduced number of the producers. Lack ofcompetition, results in absence of substitute products in the market,and in turn giving the existing suppliers of any commodity excessivepowers in the market to control the flow, and price of the product.Therefore, they control the prices of goods and services at theexpense of the consumers. To prevent this, the Sherman Antitrust Actwas established. The Act cites that Monopoly and Oligopoly practicesin the market are illegal and should be punished by governmentintervention. It aims at creating a competitive economic environmentby outlawing actions that restrict a free market economy(Cowlingand Waterson 26).This essay discusses why monopolies and oligopolies should beunlawful. It outlines the various reasons behind the reference to thetwo market practices as illegal.
Monopoliesand oligopolies enjoy a tremendous competitive advantage againstother companies that produce analogous products(Cowlingand Waterson 28).As a result, it becomes hard for new players to enter the market orto compete with them. The barriers set by monopolies and oligopoliesinclude patents, control of sophisticated technology and economies ofscale(Economicsonline.co.uk).These barriers make it hard for new firms to infiltrate such marketsas a result, reducing the variety of products in such markets. Thehomogeneity of goods and services undermines the choice of consumers,therefore, discouraging satisfaction. The lack of new firms alsoreduces the employment opportunities that would otherwise be broughtby the new businesses. Therefore, to encourage job creation,monopolies and oligopolies should be unlawful.
Monopoliesand oligopolies lead to high prices of goods and services in anattempt by the companies to maximize profits. Players in such amarket become price setters instead of price takers(Scherer7).In a market situation that is referred as a ‘monopoly’ goods andservices are set without consultation with the consumers since thesupplier is in total control of the market, and there are noalternative products available to the consumer. Oligopoly practiceson the other hand entails practices such as price fixing, i.e. Thefew companies in the market agree unanimously to provide goods andservices at a fixed price, which is usually high, to maximize theirprofits. On the extreme, monopolies can create cost push inflation byraising prices of goods and services considerably(Cowling and Waterson 33).They can also hoard output: i.e. withholding goods and services, andin turn raising product prices. Such practices are illegal andadversely affect the consumer.
Monopoliesand oligopolies discourage innovation and product improvement leadingto substandard goods and services. Market players do not encounterpressure on continuous quality improvement due to lack of competitorsand good will. These are due to lack of incentives for innovation ofnew products or improvement of the current ones (Morton et al 200).As a result, the companies offer inferior goods at high prices whichare unfair to the consumer.
Theexistence of monopolies and oligopolies discourages education andresearch on the market and consumer preferences. The competitionencourages firms to perform ‘SWOT analyses periodically in anattempt to get insight about the market. Competitors challengebusinesses to concentrate on their target groups in order to satisfytheir needs and hence, develop customer loyalty. Monopolies andoligopolies, on the other hand, are not pushed to learn about themarket. They generalize their market since they are the soleproviders. Consequently, they do not understand their consumers anddo not address their exact needs, thus no customer satisfaction andloyalty (Economicsonline.co.uk).
Monopoliesand oligopolies offset the demand curve. The demand curve in amonopoly or oligopoly in such a market reflects the industries’demand curve. The demand curve is down sloping in a monopoly unlike afree market economy. The marginal revenue becomes lower than theprice in a monopoly firm unlike in a competitor’s market where afirm’s marginal revenue is its price (Morton et al 209). Themonopolist is forced to lower prices if he/she increases the outputto encourage the purchase of more units.
Onthe other hand, not all monopolies and oligopolies are illegal. Somegrow legitimately from fair business practices and also providessuperior products at affordable prices (Scherer11).Innocent monopoly and oligopoly should be lawful as this wouldencourage the growth and expansion of such legitimate businesses toother countries bringing wealth to their mother country. Monopoliesand oligopolies are also allowed under certain special conditions.These conditions include: a business that needs enormous amounts ofcapital to start such that not many organizations can raise, forexample, oil and gas supply. Such companies accorded monopoly oroligopoly power have various regulations such as price controls beingput in place to prevent consumer exploitation. Price capping is oneof the regulations that can be used to force monopolistic andoligopolistic practices to charge low prices for goods and servicesto protecting the consumers (Scherer19).
Inconclusion, monopolies and oligopolies in the market have manydisadvantages most of whom fall on the consumer. These disadvantagesinclude high priced goods and services, substandard products, lack ofinnovation and product improvement and lack of variety in goods andservices. Therefore, it is illegal to create any conditions thatreduce competition in the market intentionally. Monopolies andoligopolies that exist are government regulated to protect theconsumer from exploitation.
Antitrustcriminalattorney.com,.`Monopolies – Oligopolies – Antitrust Schemes | Parkman & White,LLP`. N.p., 2015. Web. 8 Aug. 2015.
Cowling,Keith, and Michael Waterson. Competition,Monopoly, and Corporate Governance.Cheltenham, UK: Edward Elgar Pub., 2003. Print.
Economicsonline.co.uk,.`Monopoly`. N.p., 2015. Web. 8 Aug. 2015.
Morton,John S., and Rae J. Goodman. Advancedplacement economics: teacher resource manual.New York, N.Y: National Council on Economic Education, 2003. Print.
Scherer,F. M. `The Federal Trade Commission, Oligopoly, and Shared Monopoly`.Reviewof Industrial Organization46.1 (2014): 5-23. Web.