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MONOPOLY

Sociologyindex, Sociology Books 2012

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. The ability of a monopolist to extend its influence to adjacent markets is a challenge both to the competitors in those markets and to economists looking to understand the antitrust implications of bundling.

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 Toronto Ontario
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. This paper takes account of these transfor mations and considers critical observations made by contemporary Marxist writ ers.

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. I also discuss whether market forces alone would transform the market into a competitive one, consider possible continuing roles for existing performing rights organizations, and compare the Canadian and the U.S. regulatory approaches to determine how conducive they are to such change.

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. There is no strong justification for either imposing regulations on trading or restricting the creation of new contracts because the exchanges seek to select the appropriate mix of precaution and penalty.

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, Nankang, Taipei, Taiwan; E-mail: speng@econ.sinica.edu.tw. Present address: 128 Yen-Chiu Road, Sec. 2, Taipei 115, Taiwan
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 - Author: 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. In particular, the experiences of the former socialist states in Europe should be taken into account, given that they are similarly undergoing the transition from a planned economy to a market economy.

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. Moreover, the Rule of Reason generally modified 1 ?competition? with ?reasonable.? 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 (the applicable, ¨relevant market,¨ which may be either product- or geographically based, or both). This Report will attempt to clarify the difference between the concepts of ?monopoly? and ?monopolization?; and will touch on the monopoly/monopolization thinking in the Antitrust Division of the Department of Justice (DoJ) and the Federal Trade Commission (FTC), as illustrated in (1) statements on merger enforcement made by current antitrust enforcement officials, since such expressions are generally indicative of the agencies? concerns about competitive conditions and the effect of various market transactions, (2) the 1992 Horizontal Merger Guidelines, and (3) some observations on the Government actions against the Microsoft and Intel Corporations.
Summary
Section 2 of the Sherman Act prohibits both the monopolization and attempted monopolization of interstate or foreign trade or commerce. Section 7 of the Clayton Act prohibits mergers or acquisitions “where in any line of commerce or any activity affecting commerce in any section of the country, the effect of such [transaction] ... may be substantially to lessen competition, or to tend to create a monopoly.” Section 5 of the Federal Trade Commission (FTC) Act prohibits “unfair acts” in commerce.
A shorthand definition of “monopoly” is “the power to control prices or exclude competition.” The significance of the ability to exclude competition is, however, as is the ability to control prices, in the supposed deleterious effect of the lack of competition on, consumers, who are presumed to benefit from the existence of largely competitive markets, and not on the excluded competitors:
‘[t]he antitrust injury requirement obligates [complainants] to demonstrate, as a threshold matter, “that the challenged conduct has had an actual adverse effect on competition as a whole in the relevant market; to prove it has been harmed as an individual competitor will not suffice.”’
“... it is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’”
But since there is no concept of “no fault” monopolization in United States antitrust law, absent a finding by a court of “guilty behavior,” there can be no finding of “monopolization”: that is, a finding of “monopoly power” does not necessarily equate to a finding of the monopolization prohibited by either section 7 of the Clayton Act or section 2 of the Sherman Act, or the “unfair practices” prohibited by section 5 of the FTC Act.
Practically, then, there must be a determination of the market(s) within which the alleged monopolist operates (i.e., the relevant product market and/or the relevant geographic market) in order to determine the extent to which he is actually capable of exercising any meaningful price-controlling or competition-excluding power, or the extent to which he has already done so.
There are at least four views of economic markets which provide some context to the “relevant market” and subsequent monopolization determinations: free market, which holds that (a) market forces produce the best allocation of resources, and (b) the non-anecdotal evidence indicates no correlation between concentration and profits; centrist, which is somewhat similar to the “free market” view that size and distribution don’t necessarily signify the intensity of competition, but does believe that collusion is more likely in concentrated markets; moderate structuralist, which emphasizes that the greater the number of competitors in a market the more likely there will be downward pressure on prices; and strict structuralist, which holds that competition is directly and inversely related to concentration levels. The "bottom-line" goal of U.S. antitrust policy should be "to encourage producers to make and sell better products at lower prices and pass those savings on to consumers."
The jointly issued Horizontal Merger Guidelines were promulgated in order to inform the business community of the agencies’ (DoJ, FTC) governing philosophy and “analytical framework” when they are reviewing the permissibility of proposed mergers.
The “Purpose and Underlying Policy Assumptions” section of the Introduction states unequivocally that “mergers should not be permitted to create or enhance market power or to facilitate its exercise, but goes on to note that while “competitively harmful” mergers will be challenged, there is a “larger universe of mergers that [is] either competitively beneficial or neutral.” Emphasizing that distinction, the Assistant Attorney General in charge of the Antitrust Division testified:
Sometimes people complain about a merger solely based on its size. ... I want to make clear [, however,] that antitrust analysis focuses on the specific competitive harms that may be associated with a particular merger, not on its size in the abstract. Thus, for example, a big merger may not be challenged because the merging parties are not competitors or potential competitors of one another and the merger does not raise any vertical antitrust issues. At the same time, we may challenge a smaller merger that involves the only two firms that make a particular product. The key for our review is whether the merger will harm consumers, not the sheer size of the corporate entities involved.
United States v. E.I. duPont de Nemours & Co. is considered a landmark monopolization case; there, in order to determine whether duPont’s dominance in the cellophane wrapping market amounted to unlawful “monopolization,” it was ultimately necessary for the Court to determine “whether [duPont] control[led] the price and competition in the market for such part of trade or commerce as [it is] charged with monopolizing,” i.e., whether there was significant enough competition from non-cellophane, flexible wrapping materials to dilute duPont’s admitted monopoly in the cellophane wrapping market. The monopoly enjoyed by duPont in the cellophane wrapping market was found not to amount to unlawful monopolization of the market for flexible packaging materials.
Two recent filings appear to illustrate the antitrust enforcement agencies’ currently existing differentiation between the existence of monopoly power and active monopolization; the Antitrust Division’s suit against Microsoft and the FTC’s complaint against Intel. In Microsoft, the Division acknowledged that “Microsoft possesses (and for several years has possessed) monopoly power in the market for personal computer operating systems,” and filed its actions not to challenge Microsoft’s monopoly status, but rather, the company’s actions:
To protect its valuable, Windows monopoly against ... potential competitive threats, and to extend its operating system monopoly into other software markets, Microsoft has engaged in a series of anticompetitive activities. Microsoft’s conduct includes agreements tying other Microsoft software products to Microsoft’s Windows operating system; exclusionary agreements precluding companies or potential competitors from distributing, promoting, buying, or using products of Microsoft’s software competitors or potential competitors; and exclusionary agreements restricting the right of companies to provide services or resources to Microsoft’s software competitors or potential competitors.
Similarly, in the charges against Intel Corporation by the FTC, the Commission acted to restrain the "pattern of conduct ... that violates Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45," and not because of Intel's acknowledged monopoly status.
As a monopolist, Intel can compete by producing better, cheaper and more attractive products. It cannot act to cement its monopoly power by preventing other firms from challenging its dominance. Intel has acted illegally. It has used its monopoly power to impede innovation and stifle competition [by denying necessary technical information to certain customers in retaliation for their suits against Intel to enforce their (the customers') patents, allegedly infringed by Intel].
Some observers view the present enforcement posture as evidence of the flexibility and workability of the federal antitrust laws, although it is certainly possible to disagree with the way(s) in which the antitrust enforcement agencies have acted with respect to particular instances of proposed mergers or vis-a-vis specific, alleged monopolists. Given the existing rationale of the antitrust laws, however, it is difficult to disagree with their policy of prohibiting only those transactions/activities which they believe do/will, in fact, harm competition. On the other hand, Congress is free to re-examine the century-old antitrust statutes in order to change their focus.

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