Sociology Index

MONOPOLY

Monopoly is a situation in which one company has gained control of the market for a particular good or service. Monopoly is in direct conflict with the values of liberalism which emphasize competition among numerous producers.

Monopolistic trade practices is trade practice which has or is likely to have the effect of maintaining the price of the good or charges for the services at an unreasonable level by limiting, restricting or otherwise controlling the production, supply or distribution of goods or services. Monopolistic trade practices also covers the unreasonable prevention or lessening of competition.

Monopoly, from Greek words monos, alone or single + polein , to sell, is created when a specific individual or enterprise gains excessive control over a particular product or service and is thus able to determine the terms on which other individuals shall have access to it. Aristotle describes Thales of Miletus' cornering of the market in olive presses as a monopoly. Monopoly is characterized by a lack of economic competition for the good or service that they provide and a lack of substitute for such good or service. British East India Company; created as a legal trading monopoly in 1600.

"Monopolize" refers to the process by which a firm gains greater market share than normal under perfect competition. Monopolies are generally formed through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors from entering the same field.

Bundling as a Way to Leverage Monopoly - Barry J. Nalebuff, Yale School of Management
September 1, 2004,Yale SOM Working Paper No. ES-36
Abstract: This paper shows how a monopolist generally can increase its profits by offering a discount on its monopolized product if the customer agrees to buy a competitively supplied good from it at a price premium. The use of bundling to leverage market power has a long (and checkered) history in law and economics. The Chicago School seemed to end the debate with their result that there is only one monopoly profit and thus there is no gain from bundling. This folk theorem relies on some special assumptions, most importantly that the goods are consumed in fixed proportions. Once we allow for continuous consumption levels, then it is generally the case that a firm can extend a monopoly from A into a competitive B market. While it is well understood how a monopolist can use tying to extract more consumer surplus or to engage in price discrimination, this paper pursues a different motivation. The emphasis of this paper is on optional, as opposed to forced, tied sales. The firm offers to scale back its monopoly price in return for getting a price premium in a second market. The reduction in monopoly price causes no first-order loss to the firm, while providing a first-order incentive for customers to voluntarily accept the deal.

Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition
Farrell, Joseph, Gallini, Nancy T
Abstract: The authors show that a new product monopolist may benefit from (delayed) competition if consumers incur setup costs. Setup costs create a dynamic consistency problem: the monopolist cannot guarantee low future prices once customers have incurred those costs. The authors show that, if customers anticipate this problem, the monopolist's profits can be improved through ex ante commitment to competition in the post-adoption market if setup costs are large. If setup costs are small, the monopolist can typically achieve the same level of profits without price commitment as with. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

E.S. Varga and the Theory of State Monopoly Capitalism - Charlene Gannage - Sociology Department University of Toronto
Review of Radical Political Economics, Vol. 12, No. 3, 36-49 (1980)
This paper traces the development of the theory of state monopoly capitalism as presented by the Soviet political economist, E.S. Varga. Early theories of state capitalism that found expression within the Third International, especially in the work of Lenin and Bukharin, provide the context for under standing Varga's views of the capitalist state during the 1930s. A discussion of Varga's positions demonstrates the correspondence of his work with that of crit ics of Soviet orthodoxy, notably Trotsky and Poulantzas. Following the Moscow debate of 1947 Varga fell out of official favor and he was not rehabilitated until 1953. His analysis of the capitalist state continued to evolve resulting in the theory of state monopoly capitalism.

THE POTENTIAL DEMISE OF ANOTHER NATURAL MONOPOLY: NEW TECHNOLOGIES AND THE ADMINISTRATION OF PERFORMING RIGHTS - Ariel Katz, Published by Oxford University Press.
This is a second in a series of two articles in which I challenge the collective administration of performing rights. In the first article, published in a recent issue of this journal, I questioned the natural monopoly paradigm that dominates the analysis of collective administration of performing rights. In this article I demonstrate how, by lowering many of the transaction costs which previously purported to justify the practice, new digital technologies further undermine the justification for collective administration.

Monopoly, manipulation, and the regulation of futures markets - Easterbrook, Frank H.
The Journal of Business, Publisher: University of Chicago Press
Article Abstract: The threat of monopoly and manipulation in the futures markets is assessed in order to determine whether entry into this market should be so heavily regulated. The costs of monopoly in futures markets and the markets' responses to these costs are assessed. Precautions against monopoly taken by exchanges are examined, as well as some cases of actual or asserted monopolization. The evidence suggests that, although there are some episodes of monopoly and manipulation in futures markets, they are very few.

Spatial Monopoly with Product Differentiation - Shin-kun Peng
Southern Economic Journal Article: pp. 646–660, Volume 70, Issue 3 (January 2004)
Institute of Economics, Academia Sinica, and Graduate Institute of Building and Planning, National Taiwan University
Abstract: Most theoretical work on the behavior of spatial monopoly focuses on the single-product case, while, in reality, a firm usually produces (or sells) many differentiated products. In this paper, I introduce a new model of spatial monopoly with a multiple-product firm where the firm chooses both the measure of product varieties and the price of each variety to maximize its profit. I also examine the monopolist’s optimal decision and its economic effects on the spatial economy with a fixed and variable market fringe, respectively. For a class of preferences to product differentiation, I find that both the quantities produced and the consumer surpluses vary across three different spatial pricing policies. This finding is in contrast to the literature on a single-product spatial monopoly where those results are invariant across different pricing policies.

On the Existence of Spatial Monopolies Under Free Entry - Sebastien Steinmetz
INRA-Grignon, Laboratoire d'Econometrie de l'Ecole Polytechnique, Yves Zenou
University of Southampton, GAINS, Universite du Maine and CEPR
Abstract: This paper studies the question of entry in the circular city model when the pre-entry market structure involves local monopolies. In contrast with Salop (1979), we show that the unit profit rate of incumbent monopolists is strictly positive and bounded above. The upper bound decreases with the size of gaps and with the number of incumbents.

Administrative Monopoly and the Anti-Monopoly Law: an examination of the debate in China - Gordon Y. M. Chan -
Journal of Contemporary China, Volume 18, Issue 59 March 2009 , pages 263 - 283
Abstract: After more than a decade of preparation, China finally passed the Anti-Monopoly Law (AML) on 30 August 2007. This paper examines the debate over whether or not administrative monopoly should be included in the ambit of the AML, which took place throughout the drafting process of this new law. Administrative monopoly refers to the abusive use of administrative power by government agencies to engage in monopolistic activities. Owing to the administrative nature of this type of monopoly, the intent to regulate it by an economic law, such as the AML, has stirred up much controversy. Having analyzed the arguments both in support of and in opposition to the inclusion, this paper suggests the need to adopt a more comprehensive scheme in tackling administrative monopoly. Also, the enforcement mechanism of the AML will have to be strengthened in order to prevent this new law from degenerating into 'a toothless tiger'. Furthermore, the competition law regime of China will benefit from in-depth research in overseas anti-monopoly practices.

Monopoly and Monopolization? Fundamental But Separate Concepts in U.S. Antitrust Law
Janice Rubin - CRS Report for Congress
Abstract: Antitrust doctrine holds that viable competition will best protect consumers; it is only concerned with the viability of individual competitors insofar as their fates affect marketplace competitiveness. Viewed in the context of the Rule of Reason, the general prohibitions against monopolization and attempted monopolization contained in section 2 of the Sherman Act and against monopolization in section 7 of the Clayton Act, and the unlawfulness of 'unfair acts' in commerce under section 5 of the Federal Trade Commission Act, require two things: first, an inquiry into whether an entity is in fact a monopolist; and second, whether that monopolist has unlawfully monopolized the market(s) within which it operates. This Report will attempt to clarify the difference between the concepts of monopoly and monopolization; and will touch on the monopoly and monopolization thinking in the Antitrust Division of the Department of Justice (DoJ) and the Federal Trade Commission.