Economics of a Monopoly Research Paper

Introduction

Monopoly is experienced when a single seller is the sole dealer of a certain product or service in the market. A monopoly trader does not face any completion, and thus he or she may sell the goods or services at any price and quality. Presence of monopolies has received both support and criticisms from the economists, some feeling that it is a bad practice while others justify it. The research paper below discusses the advantages and disadvantages of monopolies. Also, it examines how Google has used its monopolistic powers in the internet search engine. However, globalization and government policies will cause a decline in the number of monopolies in different markets.

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Theory and Economics of a Monopoly

Monopoly is experienced in the economy because of absence of competitors in the market. Also, it may exist when a particular business have an advantage over the others in the same market. For example, some companies may own unique resources used in the production and this may make them the only sellers of a product or provider of a particular service. The theory of competition is the basis from which monopoly is formed. It is through the lack of competition that a monopoly is created. The economy behind a monopoly is the ability of a certain company to control the factors of production and hence be the only business that offers a particular product to the market (Parenti, Ushchev, & Thisse, 2017). Monopolies can determine the prices and quality to be offered to the consumers since no competitors are present. However, sometimes governments may control the actions of monopolies.

Advantages and Disadvantages of a Monopoly

Advantages

Monopoly makes some firms to make high profits since there are no competitors. All the consumers of a certain product have to purchase from the sole dealer, and thus the sales of such a company are high. Also, service providers who do not face any competition from other business people may also make a lot of money (Huck, Lunser & Tyran, 2016). For instance, a monopolistic business that deals with the sale of cups in a region will have high profits resulting from a large number of sale. No matter how small the profit per product may be, the company may still experience a large monthly or annual profit because of the large quantities sold. Therefore, any business that operates as a monopoly rarely runs at a loss.

Monopoly firms are a large source of government income through taxation. Governments get a lot of money from monopolies after they tax them on the profits they gain. It is easy for a government to follow up a single business in a certain industry than when they are many (Parenti, Ushchev, & Thisse, 2017). When many companies are in a particular area of trade, some may end up evading tax. Also, some may run at a loss and hence the government may get very little income. A sole business in an industry cannot lie to the tax departments on the profits they gained because it is easy to trace by checking their books of accounts which may be hectic if the industry has very many firms.

Monopolies enjoy the economies of scale because they are the only suppliers of a particular product that may be receiving high demand from the consumers (Huck, Lunser & Tyran, 2016). The monopolistic businesses may be able to purchase large quantities of raw material at a low price, and thus their production cost may be cheap. The advantages of the economies of scale may be passed to the customers where they can pay little amounts for the goods or services. For example, if a company is the only one dealing with the sale of furniture, it may be required to purchase a large quantity of timber which may be cheap and later reflect the same to the customers by selling to them at a lower price.

Monopolies get a lot of profits which they later use to research on the new strategies that can be implemented to produce high-quality commodities (Huck, Lunser & Tyran, 2016). For example, a monopoly may have enough money to invest in research that may later lead to the purchase of machinery that may increase the production rate. Also, a monopoly reduces the wastage of resources since only one company produces goods that match the demand in the market. Sometimes having many firms in an industry makes each of them hold products in the store because the supply may be exceeding the demand. Also, with a monopoly, there are few chances of production of counterfeit goods because only a single firm sells certain products.

Disadvantages

Monopolies are aware that they are the only firms offering a specific product to the market and hence may charge very high prices. Monopolistic markets have no other suppliers or service providers; thus the sole dealers in the field quote high prices because they believe there are no competitors (Huck, Lunser & Tyran, 2016). They are always sure that the consumers will purchase the products at the prices provided since they have no alternatives. For example, a monopolistic company that deals with the production of floor mats will charge high prices for the items and the consumers will have to buy them since no alternative is available. A monopolistic business is not affected by the mechanisms of demand and supply in setting their prices, and thus they may decide to raise their prices at any time; increasing their profitability. Therefore, where a monopoly is involved, the consumers have no choice but to pay the high prices charged by the company.

Monopoly is also associated with the sale of low-quality products since there are no competitors to offer an improved products to the consumers. Also, monopolies may at sometimes sell outdated products since they are aware that the consumers cannot get any other supplier who may provide a substitute for the ones offered (Huck, Lunser & Tyran, 2016). Competition makes the management of companies to come up with strategies that ensure that the goods offered for sale are of high quality so that they can attract more buyers than other businesses in the same industry. However, without competition, companies offer low-quality products that do not satisfy the needs of the customers. For example, a monopolistic electronics company may produce low-quality goods that may not last for long yet the consumers may continue purchasing them severally since there exists no other option. Some monopolies may deliver low-quality goods so that the consumers can buy the same product severally after a short period thus increasing their sales and profitability.

Monopolistic businesses are also associated with paying the employees minimal wages and salaries. The issue is mainly prevalent in companies that utilize some special skills where the workers can only get employment in the firm. In such a case, no other company is available to absorb the worker's skills, and hence they must remain in the monopolistic business and accept any pay that they may be offered (Huck, Lunser & Tyran, 2016). For example, some people may have education and skills in the plastic industry which may be controlled by a monopoly. Thus, such people may be paid too little by the monopolistic plastic firm, but they may have to accept the pay since they are aware that it is challenging to get another employer. Therefore, the management is also aware that such people have limited choices and thus they can be overworked and still get paid low salaries with less complains since they can be threatened that they should accept the terms issued.

Monopoly may lead to a sudden shortage of a product in the market or sometimes cause its total unavailability. Monopolistic companies are the only source of a product and hence if they close down for some few days, then the supply in the market will not meet the demand from the customers (Parenti, Ushchev, & Thisse, 2017). Sometimes the machinery in a monopolistic firm may break down, and hence no production of the commodity may take place until the repair is done. For example, if a monopolistic soft drink company have problems with its machinery, no consumer may get the product until the issue is resolved. Some of the monopolies may have control of some essential products and hence their interruption may cause suffering to the customers.

Case of Monopoly

Google is among the companies that enjoy monopolistic powers in the world. It has the largest control of the internet search engine where most of the people have used Google to search for anything that they need from the internet (Iacobucci & Ducci, 2019). However, the company has been accused of severally for the misuse of its monopolistic powers. For instance, in 2017, it was charged by the European Union for using the search engine to ensure that online shops that the company had an interest in would sell more. Also, in 2018, the company was accused of requiring the Android phone companies to pre-install the Google Search and Chrome apps in their phones so that they could be given the license for the Google App store. The strategy is to ensure that the firm remains relevant as it spread its monopolistic powers even to the purchasers of the phone and make it remain a monopoly in the industry.

The Future of Monopolies in the World

Globalization is a power that is likely to end the progress of monopolies in different countries. Some of the sole businesses operating in different countries have remained stable because of the lack of competitors in their industries. Globalization is a current trend in the world and has enabled various firms to sell their products across the globe limiting the presence of monopolies in the markets (Kopf, Vehorn, & Carnevale, 2013). For example, if a country previously had a single supplier of electric materials, then with globalization different companies may sell the products to the residence if they realize that the demand is high. Also, consumers will appreciate globalization because it will lead to the sale of high quality goods and each of the people will be purchasing products from the businesses that sell them cheaply. Therefore, globalization will increase competition; thus the prices of the goods and services will drop because of the market forces of demand and supply.

Governments have also developed policies that have checked the operations of the monopolies and their pricing. Most governments have noticed the high pricing of monopolies and their production of low-quality goods. Monopolistic businesses have been selling products at a very high price since they are aware that the customers have no alternative. Additionally, they have not been concerned about the quality of goods or service because they control the market and no other supplier or service provider exists (Kopf, Vehorn, & Carnevale, 2013). In coming years, it is expected that most governments will copy what others have done in developing policies that enable to checks the quality and price of the products offered by the monopolies. Also, in some countries, governments have engaged in some businesses which few private investors can venture into with the aim of ensuring that the companies present do not exploit the customers.

Conclusion

In conclusion, it is evident that monopolies exist in the markets due to their sole ownership of some factors of production that may not be owned by other companies in the same field. In such cases, the business with the control of some resources may make the others to close their operation because of the competition on price where the benefiting companies may be offering their products at a low price. Monopoly may have both advantages and disadvantages. The benefits include high profits, large amounts of government tax, avoidance of wastage of resources and development of a certain product due to research. On the other hand, the disadvantages include; high prices, low quali...