![]() ![]() Costs of production make a single producer more efficient than a large number of producers.Īlthough exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason.The government gives a single firm the exclusive right to produce some good.The fundamental cause of monopoly is barriers to entry. its product does not have close substitutes.Some legal monopolies are regulated by government bodies to ensure that they do not abuse their power, and to protect the consumers.While a competitive firm is a price taker, a monopoly firm is a price maker. However, they can also lead to high prices, poor service, and lack of innovation. Legal monopolies can be beneficial in certain situations, as they can allow a company to invest in expensive infrastructure or research and development without the risk of competition. Nevertheless, their monopoly was ended due to the discovery of diamond mines in Russia and Canada, which broke their control on the supply and prices of diamond.īoth examples demonstrate how legal monopoly can have both benefits and drawbacks and how the market, laws and regulations can change over time. ![]() ![]() Critics have argued that this led to a lack of competition, which stifled innovation and kept prices higher than they would have been otherwise. This monopoly allowed De Beers to maintain control over prices and keep them artificially high. They controlled around 80-90% of the diamond trade by controlling the supply of rough diamonds that were being mined, and then controlling the distribution of those diamonds through its diamond cutting and trading arm, the Diamond Trading Company. Case Study: De BeersĪnother example of legal monopoly, is the case of De Beers, a South African company, that was a legal monopoly in the diamond market. In recent years, the USPS has struggled financially, due to decreased mail volume, increased competition from digital alternatives, and a lack of funding from the government. However, the USPS has faced criticism for poor service, high prices, and lack of innovation. This legal monopoly has allowed the USPS to build a nationwide network of post offices and mail delivery routes, which is difficult for a private company to replicate. This means that no other company or organization is legally allowed to deliver mail within the US, and the USPS has exclusive rights to this market. The USPS is a government-owned corporation that has been granted a legal monopoly on the delivery of letters and other mail within the United States. One well-known example of a legal monopoly is the United States Postal Service (USPS). Due to this, the government felt no need for AT&T to maintain its monopoly status, and the monopoly came to an end in 1982. This required AT&T to divest its operating companies by reaching a settlement in 1982. Some distance providers filed an antitrust lawsuit against AT&T in 1974. In 1970, The Federal Communications Commission allowed limited competition. In 1913, the justice department reached a settlement with AT&T and the firm was allowed to operate as a monopoly for the next 7 decades. With the company’s service used by all citizens of the United States, many believed that the government would step in and take over AT&T to prevent the firm from gaining too much power. The firm inventor formed and established the company in 1907. ExampleĪs mentioned above, AT&T is the best example of a legal monopoly. Monopolies do not need to innovate on their products/services or provide exceptional customer service as there are no competitors in the market. The biggest disadvantage behind such a monopoly is the lack of incentive to improve the product or service offered and a potential limitation of innovation. Legal monopolies rectify a number of disadvantages in a monopoly. In other words: competition ultimately benefits consumers, more-so than legal monopolies do. As technologies advances and economies evolve, playing fields level out, all on their own. The idea behind implementing legal monopolies is that if too many competitors invest in their own delivery infrastructure, prices across the board would climb to very high levels. Real roads and airlines have also operated as this structure throughout different periods in history. For e.g., in the U.S., AT&T operated as a legal monopoly until 1982 because it was very cheap and had reliable service that was easily available to everyone. So it is ordered when it is beneficial for both the citizens and the government. They can be either run independently and government regulated, or both run and regulated by the government.Also it can be established through the following ways: Also, it is s also known as a statutory monopoly. A legal monopoly refers to a company that operates as a monopoly under a government mandate and is protected by law from competitors. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |