Monopolies, Oligopolies and the Economy
Monopoly is a term to describe an industry where a seller of a product or service does not have a competitor offering a close substitute. The word is derived from the Greek words monos (meaning one) and polein (meaning to sell). Rarely does a pure monopoly exist. In a pure monopoly there is only one company making and selling the item in question; however there can also be the situation where there is one company who has the bulk of sales and the other firms in the same market have little or no impact on the overriding company. Due to lack of competitors, the monopoly company has control of the supply and price of the good or service, unless there is government intervention. The monopoly will continue to make more goods as long as their marginal cost is equal to their marginal revenue. The monopoly will stop selling goods at the point when the next item sold lowers their marginal revenue on the previous goods sold. Because there is no competition the monopoly company has more control in making a profit. In normal business situations this would cause other companies to form and try to get into the same industry hoping to make a profit as well.
As of July 29, 2008 two companies merged creating a monopoly in satellite radio. SIRIUS, which delivers more than 130 channels of 100% commercial free entertainment from news, sports, talk, traffic, and XM, the number one satellite radio company, combined to consume over 18 million subscribers and have cornered the market. Jointly, they have partnerships with the automobile market with General Motors, Honda, Nissan, Ford, and covering several hundred models of cars. This monopoly provides consumers with greater programming and content consumer choice, including offering consumers more for their dollar. The new merger enables the combined companies to develop accelerated technological innovation and benefit retailers like Best Buy, Radio Shack, and Circuit City. It also gives them power to price their radio service for a considerable profit for they are currently the only company offering this service (FCC). Loral Space & Communications provides all the satellite communication for XM and Sirius in which they own 64% of Telesat, one of the world’s largest operators of communication satellites.
Another monopoly is public education. Because the consumers have no choice, unless they can afford private school or perhaps home schooling, they must use the public school system. Parents and students have little to no control over the teachers’ unions, local school districts, state funding or federal law. The government has control over the education and social needs of children who attend public schools (Hornberger) whether that involves social programs for food, scholarships, clothing or special needs. The government runs K-12 education and children must attend the local public school in their neighborhood, although sometimes secondary school students can attend a school elsewhere. Public schools do not create a free competing market - the free market Adam Smith spoke of in The Wealth of Nations (Mankiw 361). Thus, a public school system is a monopoly. The average student simply has no choice. Some men also don’t have a choice but to use another type of monopoly. “About 50 percent of all men over the age 40 year are going to have some difficulty with erectile dysfunction,” said Chris Viehbacher, president of GlaxoSmithKline (Milford). Prior to 2001, the erectile dysfunction industry was monopolized by Pfizer with its drug Viagra. Consumers with erectile dysfunction had only one drug available, Viagra. As a result Pfizer, the manufacturer, was a price maker and could determine the price and quantity supplied of Viagra. Viagra was developed by British scientists at Pfizer's research centre in Sandwich, Kent, and covered by three patents. The first patent was filed in June 1991 after they created a new compound that they believed...
Cited: Amosweb.com. “Oligopoly and Monopolistic Competition.”, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2008. Retrieved August 6, 2008.
Fandango.com. http://www.fandango.com/. 2008. Retrieved August 7, 2008.
FCC. Federal Communication Commission. XM and Sirius Merger XM and Sirius, M Docket 07-57, 99. www.fcc.gov/transactional/xm-sirius. July 29, 2008. Retrieved Aug. 5, 2008, from
Hornberger, J. G. Monopoly, Competition, and Education Freedom. www.fff.org/freedom/0300a.asp. March1, 2000. Retrieved Aug. 5,2008.
Mankiw, Gregory N. “Principles of Microeconomics: Fourth Edition.” Mason, OH. South-Western/Thomson. 2007. 267-385.
Milford, P. “Pfizer Sues Rivals Over Viagra Patent” Bloomberg News - http://www.seattlepi.nwsource.com. 2003. Retrieved August 5, 2008.
Movietickets.com. http://movietickets.com/. 2008. Retrieved August 7, 2008.
Reuters, T. “FACTBOX-World’s Largest Stock Exchanges” Reuters UK - http://www.uk.reuters.com/article/business. 2003. Retrieved August 5, 2008.
Uhlig, R. "Pfizer Loses It’s Patent Monopoly On Viagra" UK News - http://www.telegraph.co.uk. 2001. Retrieved August 5, 2008.
Williams, David. “2007 Q2 Boat Sales Numbers.” http://www.wakeworld.com/. 2008. Retrieved August 7, 2008.
Please join StudyMode to read the full document