Monopoly - A Management Failure

In economics, a monopoly (from the Latin word monoplium - Greek language Greek monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a kind of product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

Standard Oil gradually gained almost complete control of oil production in America. At that time, many legislatures had made it difficult to incorporate in one state and operate in another. As a result, Rockefeller and his partners owned separate companies across dozens of states, making their management of the whole enterprise rather unwieldy. In 1882, Rockefeller's lawyers created an innovative form of partnership to centralize their holdings, giving birth to the Standard Oil Trust. The partnership's size and wealth drew much attention. Despite improving the quality and availability of kerosene products while greatly reducing their cost to the public (the price of kerosene dropped by nearly 80 percent over the life of the company), Standard Oil's business practices created intense controversy. The firm was attacked by journalists and politicians throughout its existence, giving momentum to the anti-trust movement.

One of the most effective attacks on Rockefeller and his firm was the 1904 publication of The History of the Standard Oil Company, by Ida Tarbell. Tarbell was a leading muckraker. Although her work prompted a huge backlash against the company, Tarbell claims to have been surprised at its magnitude. “I never had an animus against their size and wealth, never objected to their corporate form. I was willing that they should combine and grow as big and rich as they could, but only by legitimate means. But they had never played fair, and that ruined their greatness for me.” (Tarbell's father had been driven out of the oil business during the South Improvement Company affair.)

Ohio was especially vigorous in applying its state anti-trust laws, and finally forced a separation of Standard Oil of Ohio from the rest of the company in 1892, leading to the dissolution of the trust. Rockefeller continued to consolidate his oil interests as best as he could until New Jersey, in 1899, changed its incorporation laws to effectively allow a re-creation of the trust in the form of a single holding company. At its peak, Standard Oil had about 90 percent of the market for kerosene products.

By 1896, Rockefeller had shed all of his policy involvement in the affairs of Standard Oil; he retained his nominal title as president until 1911, and he kept his stock. In 1911, the Supreme Court of the United States held that Standard Oil, which by then still held a 64% market share, originated in illegal monopoly practices and ordered it to be broken up into 34 new companies. These included, among many others, Continental Oil, which became Conoco; Standard of Indiana, which became Amoco; Standard of California, which became Chevron; Standard of New Jersey, which became Esso (and later, Exxon); Standard of New York, which became Mobil; and Standard of Ohio, which became Sohio. Rockefeller, who had rarely sold shares, owned stock in all of them.


to read more about the topic:
http://en.wikipedia.org/wiki/John_D._Rockefeller#Standard_Oil
 
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roshcrazy

roshcrazy

MP Guru
Labor Markets: Monopoly, Oligopoly, and Monopolistic Competition
Written by: gpavlushkin

In society, the world of business is operated and separated into certain market forms that lay the groundwork for a specific infrastructure which lies within the different economical market systems. Through the view of economics, “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (DeUriarte), the main criteria by which one can distinguish between different market forms are based upon several specific categories. Such categories may distinguish the type of market system involved within the criteria depending on the outline structure that leads an individual to answer an economists’ most basic queries; the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. After careful research and understanding of the economical degree of measure, certain, major forms of markets clearly stand out above all; a monopoly, oligopoly, and the monopolistic competition. Each market structure consists of diverse characteristics; a monopoly is defined as a persistent market situation where there is only one provider of a kind of product or service. In contrast, oligopoly is a market form in which a market is dominated by a small number of sellers. Furthermore, the monopolistic competition is a common market form where many markets can be considered as monopolistically competitive, because there are many producers and many consumers in that given market.

Still to this day, monopolies exist in our economy and thus set certain standards that portray the lack of economic competition for the good or service in that particular market. However, several important monopolies are prevalent that justify certain factors discussed, “a pure monopoly which is a market whose sales are completely attributable to a single firm” (DeUriarte 125) and “a natural monopoly which is able to produce at the cheapest cost for society by virtue of its history and experience in the market and therefore is relatively free from any serious threat of entry by new firms” (DeUriarte 125). In a pure monopoly, the telecommunications industry has illustrated the ability to produce high profits and excessive revenue throughout the industry, allowing for the price – setting power to be evident which establish authority standards and procedures that dictate the market. Thus, assuming that the firm aims to maximize profits (where MR=MC), one can establish a short run equilibrium as shown in the diagram below.

The profit-maximizing output can be sold at price P1 above the average cost (AC) at output Q1. After observing the situation in careful detail, the firm is making abnormal "monopoly" profits or economic profits shown by the yellow shaded area. The area beneath ATC1 shows the total cost of producing output Qm. Total costs equals average total cost multiplied by the output. After sincere observation of the market trend, a firm by the name of Microsoft can readily be applied to such an argument. Microsoft is an ideal example of what a monopoly is defined as because it dominates the technology industry because of the capability to lure all competition to failed success in the market. Microsoft power is infinite and the profits continue to increase in patterns where no firms can compete even if they attempt to. In regards to the matter, constraints exist and a monopoly firm such as Microsoft pertains zero capacity for any substitutes or any products in that market that can possibly come to any relevant equivalence to the primitive goods.

On the contrary, oligopolies differ because there are a few participants in this type of market, each firm is aware of the actions of the others. Thus, oligopolistic markets are characterized by interactivity because the decisions of one firm influence, and are influenced by, the decisions of other firms. Furthermore, “strategic planning by firms always involves taking into account the likely responses of the other market participants” (DeUriarte). As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage.

Therefore, in an oligopoly, firms’ sales and revenue is calculated as a market share to the industry as a whole. For example, the industry revenue of twenty million dollars is calculated, but one firm has five million dollars of the revenue, which clearly explains that the firm has a twenty five percent market share. As a result, firms utilize non – price competition in order to accrue greater revenue and market share. In such a market system, a cartel can possibly form where oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may possibly collude to raise prices and restrict production in the same way as a monopoly. Certain few examples of oligopoly in the economy are prevalent in foreign countries in business sectors of automobile industry, consumer goods, and the steel production.

A monopolistically competitive firm acts similar to a monopolist in the short run. This is due to the fact that the firm faces a downward-sloping demand curve, unlike the horizontal demand curve an individual firm faces in a perfectly competitive market. The firm simply produces the quantity that maximizes economic profit. This occurs at the intersection of the marginal revenue and marginal cost curves. However, this situation does not exist for very long because as other firms notice that there is profit to be made, they will enter the market as there are no barriers to entry, unlike in a monopoly. Conversely, if firms are actually incurring losses, then they will exit the market. This fluctuation in supply will continue until firms are making zero economic profit (but firms would still probably record accounting profit) and the quantity demanded is at the point on the demand curve where price equals average total cost. Unlike in perfect competition, the firm does not produce at the lowest attainable average total cost. Instead, the firm produces at an inefficient output level, reaping more in additional revenue than it incurs in additional cost versus the efficient output level. While monopolistically competitive firms are inefficient, it is usually the case that the costs of regulating prices for every product that is sold in monopolistic competition by far exceed the benefits; the government would have to regulate all firms that sold heterogeneous products - an impossible proposition in a market economy.

In conclusion, after careful observation, the various market forms in the economic system are the fundamental infrastructure that maintains the product supply and demand in different industries. Whether a monopoly with one firm, an oligopoly with two or more, or a monopolistic competition composed of many firms, a degree of economic analysis in respect to the business world is available. Each must be governed and regulated by the government in order to maintain a stable economy and offer opportunity to get potential profits. So as the question implies unfair labor laws or great businessmen at work? The United States government will have the last say.
 
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krazypeeps1

New member
hey dis is pretty kewl stuf!
heres my addition to monopolies...

Main features of monopoly
• There is only one seller of a particular good or service.
• Rivalry from the producers of substitutes is so remote as to be insignificant. This implies that the cross elasticity of demand between the monopolist’s product and any other product is low.
• As a result, the monopolist is in a position to set the price himself. In fact, monopoly implies market power.
The strength of a monopolist lies in his power to raise his prices without frightening away all his customers. How much he can raise them depends on the elasticity of demand for his particular product. This in turn depends on the extent to which substitutes for his products are available. And in most cases, there is rather an infinite series of closely competing substitutes. Even exclusive monopolies like railways or telephones must take account of potential competition by alternative services. An undue increase in rates may lead to substitution of railways by motor transport and of telephone calls by telegrams. The closer the substitute and the greater the elasticity, therefore, of the demand for a given manufacturer’s product, the less he can raise his price without frightening away his customers. In fact, two conditions are necessary to make a monopolist strong, one is a gap in the chain of substitutes and other is possibility of securing control over all the close substitutes. In fact, it is very difficult to draw a line between what is and what is not a monopoly. The truth is that there is a continuous gradation between competition and monopoly, just as there is between light and darkness or between health and sickness.
IMPORTANT
Even in those industries which appear to be monopolised at any time, monopoly is constantly tending to break down. First, there have been shifts in consumer demand. Secondly, inventions may develop numerous substitutes for the monopolist’s product. Thirdly, the monopolist may suffer from lack of stimulus to efficiency provided by competition. He may not devote attention to the improvement of his product. And new competitors may crop up to fill the gap. Finally, the government may intervene.
In many jurisdictions, competition laws place specific restrictions on monopolies. Holding a dominant position or a monopoly in the market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore be met with legal sanctions. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic constituency. The government may also reserve the venture for itself, thus forming a government monopoly.
Characteristics of a monopoly
• Single Seller: In a monopoly there is one seller of the monopolized good who produces all the output. The firm and industry are identical. In a PC market there are an infinite number of sellers each producing an infinitesimally small quantity of output.
• Market Power: Market Power is the ability to affect the terms and conditions of exchange. It is the ability to set your own price. Although a monopoly's market power is high it is not absolute. A monopoly faces a negatively sloped demand curve not a perfectly inelastic curve. Consequently, any price increase will result in the loss of some customers. The monopoly's objective is to maximize profits.
• High Barriers to Entry and Competition: Monopolies derive their market power from barriers to entry - circumstances that prevent or greatly impede a potential competitor's entry into the market or ability to compete in the market. There are three major types of barriers to entry; economic, legal and deliberate.
 
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