Essay Example on Monopolies: A Review of Competition & Regulation

Introduction

The monopolies normally have powers of setting the prices of their services or products very high than in a competitive market. Thus, most of the governments wish to regulate monopolies with the aim of protecting the consumer's interest. For example, many governments apply some policies which should be used in the marketplace. Also, monopolies can be regulated by price capping, whereby the price is limited. Therefore, this task will review a case study where the concept of competition and regulation policy was applied in solving the issue of monopoly.

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Monopolization

According to researchers, monopolists aim to further their economic interests, and in most cases, they do so when they are engaged at an exclusionary conduct. Exclusionary is whereby a company trades its monopoly profits in a temporary means to increase its market share. During this practice, the other competitors in the market suffer losses. After the monopolist has achieved its goals, it increases the product price to the point that maximizes its profit (Fabrizi, Simona, Steffen and John, pg. 98). In most cases, this price is normally set very high than the determined price of a competitive market. Thus, this is one of the major reasons why the practice of monopoly is highly associated with the violation of the law.

The Minnesota mining and manufacturing company (3M) manufacture Scotch tape, which can be used at offices and homes. The 3 M Company had a share market of about 90 % in the United States until the 1990s. The management of 3M Company stated that they had a monopoly in the United States market. On the other hand, LaPage was selling different office products, and in 1980, the management team absolute to sell the second brand as well as transparent tape with a private tag. A private-label its whereby a company sells products using the retailer name instead of the manufacturer name. In 1992, 88% of labeled tapes were traded at a lower price as compared to that of the seller. In this case, LePage’s management companies, together with LePage’s incorporated, are both plaintiffs, as there is nothing that distinguishes their interest; thus, they are named LePage’s.

Goals of Antitrust Law

The antitrust law's goals are highly subjected to considering the scholarly debate. Most of the scholars state that the main aim of these antitrust laws is improving economic efficiency. There are other scholars who affirm that the primary goal of antitrust laws in dealing with justice and the small business's protection. However, the leading antitrust law scholars of the United States, argues that its main focus is on the economic goal towards an efficient allocation of resources by maximizing the welfare of the consumers (Owen, Su and Wentong, pg. 130). Thus, the scholars have different aims of antitrust laws in a competitive market.

The Sherman Act focuses on the efficiency of the economy, and this is its main aim of the antitrust laws. For example, in this case, the law was focusing on 3 M Company's operation to find out whether the company was using monopolization to its benefits in the market. In the other scholars, there is an advancement of antitrust law's non-economic goals, i.e., protection of the small business and political power issue. Sherman Acts also protects the trade policies against any unlawful monopolies. Companies should not use the monopoly as a strategy of acquiring more profits, as the consumers are likely to suffer together with other businesses in the marketplace. According to Sherman Acts, monopolization can lead to imprisonment or punishments, i.e., paying of fines. Thus, American law is against all the companies which use monopoly by taking advantage of it to acquire wealth and remain at the top of its competitors.

Monopoly Strategy

According to the economic theory, the price of a seller it’s normally determined by the cost which was used in producing a product in any competitive market. Any customer who is willing to buy this particular product can normally pay the market price. Thus, the Market will be in a position of achieving a certain equilibrium as it is in the theory of law of demand and supply. In a perfectly competitive market, the monopolist may be faced with different prices and output decisions. Thus, a monopolist has all the power over the price of its products, simply because, when a monopolist reduces its output, the overall output will reduce, leading to an increase in the prices.

From the theory of economic, consumer acceptance, as well as distribution patterns in the United States, they have highly contributed towards the shifting of some tape sales. For example, the branded tape shifted to private label tape. There was an increased growth of the office superstores, i.e., office depot and staples, and this lead to an increase of merchandisers. Thus, this leads to a change in the distribution patterns of private label tape as well as the second brand, as most of the large retailers were willing to use their brand names when selling the products.

In the 1990s, the 3M Company also entered in this market and started selling second brand products as a private label business, by naming its brand "Highland." Lepage’s claimed that the act of 3 M Company was aimed at winning more customers by lowering the price of transparent tapes. The competitive market growth highly increased, and LePage’s also added other claims towards 3M Company. For example, it claimed that 3 M Company developed some programs which were preventing LePage’s as well as other domestic companies from maintaining the large volume of sales. From these particular claims, they clearly show that the power of monopolists over its prices highly results to issue with the social costs. According to the microeconomic concept of competition policy, social costs occur in any transaction or business where net loss results. Economists state that monopolists create social costs as a result of charging the monopoly prices. Total monopoly social costs in a marketplace are equal to the total loss produced by a monopolist's price. Thus, when 3 M Company was lowering its prices of transparent tapes, it was affecting the total market output in the United States. According to microeconomics concepts, these normally result in other challenges in the marketplace if the issue of monopoly is not solved. For example, the demand may result to be higher than the supply; thus, the output of this particular product will go down while its price will increase, and no customer will be willing to buy.

Also, Lepage’s added that 3 M Company have been in a position of maintaining its monopoly as the growth of its private-label tape was aimed towards the large distributors in order to keep the Scotch tape prices. And thus, LePage’s stated that it has been operating and surviving in a trail market, and it had suffered huge losses from 1996 up to 1999 due to monopoly issue. Form the microeconomic concept of regulation and competition policy, it shows that when these actions were taking place, there were no domestic manufacturers of the transparent tape. However, the foreign manufacturers who were distributing these products did not play their roles as required in the domestic market. For example, most of the companies were using their brand name to sell and market the foreign products (Ware, pg. 112). This was the reason as to why the 3 M Company management was not concerned on what LePage’s was claiming. The 3 M Company conceded that it possessed the United States' market power due to its transparent tape brands.

Monopoly usually leads to another issue which the economists refer to as deadweight loss. The deadweight loss is normally created in a marketplace whereby the customers happen to forego for their first choice product due to the discounts or allowance provided by the seller. Thus, this is the reason as to why Lepage’s management were complying that the 3M Company was using its monopoly over LePage’s Scotch tape as an advantage in the competitive market of the United States (Gorecki, pg.59). The 3 M Company structure presented higher rebates to the customers who purchased the items of their dissimilar product lines. Also, Lepage's stated that the company gives promotional allowances to their customers as well as cash incentives to attract them into their market. From the above claims, LePage added that 3M Company is engaging in unlawful acts or agreements with the customers, and that was against the trade policies in the United States. For instance, under the law of the Sherman Act, monopolization, or any attempted form of monopoly, is against the law (Genchev, Bogdan and Julie, pg. 343).

The economic concepts state that a number of the political objections are connected to monopoly. For example, from a political argument point of view, monopoly practice leads to the transfer of wealth from the customers in the market to the producers of the products. The monopoly usually creates confusion in the marketplace for all the competing companies, as no one can predict its operation in the future (Mandler, pg. 1260). For example, the company which has engaged itself in a monopoly strategy by lowering the prices of its services or products, its management may not be sure whether after raising the prices, the customers will be willing to buy their products. Also, in a competitive market where one company is a monopoly lowers its prices, the other companies will suffer as the customers will only be willing to pay less to acquire more; thus, the overall market will be destroyed. Although these political arguments mainly deal with monopolies, the Sherman Act of law focuses on promoting businesses in consideration of economic efficiency.

After LePage’s filed a case against 3 M Company due to monopoly issues, the 3 M Company responded by filing its motions. This company was aiming at acquiring a judgment according to the law acts of the United States. The management of this company argued that all the issues that Lepage’s was complaining about, i.e., discount programs, were not against the marketing policies (Chao, Yong and Guofu, pg. 93). However, there was enough evidence that the 3 M Company was operating in an anti-competitive market. But the company did not show its business justification of its adequate practices. Finally, the court granted judgment to the 3 M Company but denied its motion for judgment of the new trail for damaging instructions. The reasons as to why the court rejected was, jury helped in returning the amount used for damages in both cases and claims. According to the United States law, a party is allowed to sue another party due to the damages experienced as a result of the violation and as a way of recovering counsel fees (Hurley, pg. 495).

Later, LePage’s agreed that the discussion of attempted monopolization of the 3 M Company was unnecessary. Both parties agreed that transparent tape was the relevant product in the marketplace of the United States. To the issue of monopoly power, the 3 M Company admitted that it possesses this power in the United States. The share market of transparent tape of 3 M Company is 90%, and there is even evidence that shows the penetration of household products is 100 % (Hadeka, pg. 349). Thus, there is no need for both parties to have an issue of market power in the United States.

Conclusion

To sum up, the concept of regulation ad competition policy is important to all the management team of any organization. The issue of monopoly is affecting the consumers at a higher rate, as they are required to pay more to acquire a certain product or service. Most of the customers' price paid in a monopoly company should be equivalent to the level of services or products offered to them. Therefore, most of the governments in different countries in t...