Competitive Market vs. Monopolies
The exists various types of market structures. They include perfect competition, monopolistic market structure, oligopoly, and monopoly. Some of these market structures exist in reality, while some of them are just theoretical constructs. However, policymakers and economists have failed to come to a consensus into admitting which of the best market structure. While some of these market structures are advocating for competition in the marketplace, others are advocating for a single seller market structure. In the monopoly market structure, for example, they advocate for the existence of a single seller who dictates the prices of goods and services. On the flip side, a competitive market structure exhibits a characteristic whereby there exist several buyers and sellers. Prices in these types of markets are determined by the price mechanism. The market force is the tenets that determine the price of a good and service. As a result, there exists an eternal debate on which among these two market structures is the best market structure that will ensure consumer and supplier satisfaction. Naturally, it’s the nature for humankind to love competition. Therefore, although there is a push and pull between monopoly and competition at the market place, competition has always proven to be the best kind of market structure. Although competition is the dominant market structure, there still exist some sectors where monopoly is prefeed to the competition.
According to Boyer & Moreaux, (1986), the Competitive market is described as a market structure whereby firms actively compete with each other. under the competitive market; there exists no single firm that has power over other firms. As a result, under a competitive market structure, industries produce a socially optimal level of production since there exists no firm that can influence the price of a good or service. The ideas of a competitive market structure are market with several assumptions. For example, under a competitive market structure, there is free entry and exit into the market. In this case, there exists no legal or capital barrier that can restrict a specific entity from participating in the market. Another assumption of a competitive market structure is that all firms maximize profit. Therefore, the production process of firms is aimed at maximum returns with minimal costs possible. On the flip side, a monopoly market structure exhibits a case whereby there exists a single seller in the firm which controls the whole market. In this case, a single firm has the highest level of market power, making consumers not have an alternative but to fall behind what the monopoly company dictates. This single seller can set the prices of goods and services. Under the monopoly market structure, there also exists a barrier to entry and exit into the market. Some of these barriers are capital, while some legally influenced (Scopelliti 2010). Despite their disparities, there exist specific market structures whereby a monopoly market structure is encouraged while other market structures whereby the competitive market structure is encouraged. Just as Bilbiie et al. (2008) writes about the sources of monopoly power, government licenses and franchises have been used in the development of monopoly power. The Federal government and local authorities can grant licenses to firms located in certain parts of the country so that they obtain an exclusive right for operation. However, these licenses are given to industries located in areas whereby the existence of more than one farm will be harmful to product and service delivery. Another source of monopoly power is patents and copyrights. In this case, a company is granted an exclusive right to produce certain goods and services. In this case, a particular firm will have the only right to produce and distribute specific products and services. Exclusive control over vital inputs can also lead to the establishment of a monopoly. Certain companies will have sole power over a particular production channel since competitors cannot form as a result of a lack of inputs. Economies of scale are also another way company obtains monopoly power. In this case, the high cost of the production process may scare away competitors, thereby leading to the existence of a single seller in the market. Despite the rise of market monopolies, governments have enacted regulations that are aimed towards breaking monopoly companies and establish a fair playing ground for all market participants.
According to Stucke (2013) writes, competition advocacy has been witnessed across the globe, with several countries enacting the antitrust laws. Also known as competition laws, countries around the world have enacted these legislations intending to protect consumers from predatory business practices. Some of the predatory business practices include an unregulated monopoly structure whereby a monopoly company exploits consumers by setting prices of essential goods and services relatively high. From Evans & Hylton’s (2008) perspective, the goal of the antitrust laws is to facilitate the creating of an equal playing field for the various market players in multiple industries. The legislations also prevent businesses and other organizations in the market structure to gain power over other companies in the market. These antitrust laws developed by the United States have evolved with the markets, guarding against monopolies and other forms of disruptions that can hamper the ebb and flow of competition. If these laws were not in existence, then it is likely that consumers would have been forced to pay higher prices for goods and services as well as having limited access to the supply of products and services. In essence, these are the typical characteristics of a monopoly market structure. According to the Sherman Act, for example, the act was designed to be a comprehensive charter that will promote economic liberty while at the same time maintaining a liberal and unfettered competition, a trade regulation (Stucke 2013). The premise behind this law is that the unrestricted interaction of competitive forces at the market place will facilitate the yielding of the best form of allocation of economic resources to various entities. Poignantly, the primary aim of the competition officials is to protect the public from anticompetitive special interest groups who are mainly fueled by monopolists. The existence of competition in the marketplace is not abstractly; rather, its heavily influenced by the existing informal institutions as well as legal entities that have been put in place.
Several virtues come with market competition. As most economists and policymakers have argued, the best way the best method of resource allocation is through the free market. Therefore, consumers should have the free opportunity of selecting the best product or service from the provided wide array of supplies (Baldwin & Scott 2013). On the existence of a monopolistic market structure, consumers will have a limited degree of choice. However, one of the most vital benefits of competition is that it encourages innovation. As companies and various market players compete, the invention of new and better products is spurred. Every supplier or company will yearn to be on top of the game to win more customers, thereby boosting their sales revenue. The result of this is that consumers will be able to access quality products at affordable prices. At the same time, as innovation is spurred as a result of the existence of competition, economic growth and development will be boosted. Efficient, less costly methods of production will be embraced. The Standard of living will also be improved as a result. Technological breakthroughs that have been catalyzed by innovation has seen the creation of sophisticated and high-tech products like complicated phones, cars, airplanes, computers, among other advanced products (Scopelliti 2010). In the same context, the competition will also prompt companies to employ less costly manufacturing processes that will see to it that the company’s net profit is boosted. The increased saving as a result of the less-costly method of production can be passed to the consumers, thereby raising their standards of living. As competition in the marketplace thrives, producers will be able to identify consumer needs, thus produce goods and services to meet the consumers’ expectations; as a result, consumer satisfaction is realized. One of the other primary advantages of competition is that it provides consumers with more options as they seek to make purchases. Consumers can, therefore, make choices best on the products that they best prefer.
Several setbacks associated with monopoly power have been highlighted by various economists and policymakers (Bilbiie et al. 2008). Monopolies are associated with setting high prices for their goods and services as compared to competitive markets. Typical characteristics of monopolies are that they exhibit an inelastic demand. As a result, monopolies can increase prices without the fear of losing customers because customers have no other alternative. A monopoly market structure also facilitates a decline in consumer surplus. Under the monopoly, consumers are forced to pay high prices for goods and services, making few consumers be able to afford some essential products and services. In the same context, these practices also lead to allocative inefficiency since the prices for goods and services are higher than the marginal costs. With their market dominance, monopolies have a low incentive to be efficient. The inexistence of competition enables monopolies to make an abnormal profit without a lot of effort. These companies will not have an incentive to produce quality products. An overflow of monopoly power may make a company gain political power. They may, as a result, can shape society in an unaccountable and undemocratic way. It can be illustrated by social media giants like Twitter and Facebook, which has significantly influenced information diffusion in society.
The entire globe has proven itself to be a competitive society. It is the reason why governments have put up laws intending to promote competition at the market places. The antitrust laws are a typical example of laws put up in a place with the purpose of taming monopolies and encourage competition. The virtues associated with a competitive market outweighs the advantages of having a monopoly market structure. Therefore, to promote economic equality and economic growth, a competitive market should be encouraged. Competition fosters innovation, as well as facilitating consumer satisfaction.
References
Baldwin, W., & Scott, J. (2013). Market structure and technological change (Vol. 1). Taylor & Francis.
Bilbiie, F. O., Ghironi, F., & Melitz, M. J. (2008). Monopoly power and endogenous product variety: Distortions and remedies (No. w14383). National Bureau of Economic Research.
Boyer, M., & Moreaux, M. (1986). Perfect competition as the limit of a hierarchical market game. Economics Letters, 22(2-3), 115-118.
Evans, D. S., & Hylton, K. N. (2008). The lawful acquisition and exercise of monopoly power and its implications for the objectives of antitrust. Competition Policy International, 4(2), 203.
Scopelliti, A. (2010). Competition and economic growth: A critical survey of the theoretical literature. Journal of Applied Economic Sciences (JAES), (11), 70-93.
Stucke, M. E. (2013). Is competition always good?. Journal of antitrust Enforcement, 1(1), 162-197.