Question

Chimney sweeps in Germany must be licensed by the central government. Each chimney sweep can only clean chimneys in a given town, part of a city, or given rural area. In addition, the government requires every home with a chimney to be cleaned at regular intervals, and the home owner must be able to show an up-to-date certificate of compliance from their area’s chimney sweep. The sweeps cannot clean chimneys outside their areas. The government strictly limits the number of licenses. There have been discussions of simply increasing the number of licenses to those who can qualify and letting any chimney sweep clean chimneys anywhere in Germany.

1. Explain what is the definition of a monopoly.

2. Discuss how the following example fits or doesn't fit the criteria for a monopoly.

3. What is likely to happen to the price of chimney sweeping services if such a plan is implemented?

4. Do you agree or disagree with the proposed plan? Explain.

Answer 1

Q-1: Explain what is the definition of a monopoly.

A: A monopoly can be defined as the control or restriction of any trade of a product or service in a particular area where there are no competitors or options available to consumers and there are no other options available.

2. Discuss how the following example fits or doesn't fit the criteria for a monopoly.

A: This example fits the criteria of a monopoly. In fact, this is not an economic monopoly but rather a government enforced monopoly in the market. The monopolistic situation has arisen wherein chimney sweeps must be licensed by the central government and there are restrictions where each chimney sweep can only clean chimneys in a given town, part of a city, or given rural area. The sweeps cannot clean chimneys outside their areas and the central government strictly limits the number of licenses thereby creating a monopoly.

Q-3. What is likely to happen to the price of chimney sweeping services if such a plan is implemented?

A: A monopoly creates an unfair and discriminatory pricing system where consumers do not have a choice but to pay the fixed price of a supplier and cannot bargain. Further, the government requires every home with a chimney to be cleaned at regular intervals, and the home owner must be able to show an up-to-date certificate of compliance from their area’s chimney sweep. This means that consumers have to avail this service out of compulsion to show compliance with the government requirement and consumers must pay for it to the fixed chimney sweeper in their area at the fixed vendor rate.

Q-4: Do you agree or disagree with the proposed plan? Explain.

A: There have been discussions of simply increasing the number of licenses to those who can qualify and letting any chimney sweep clean chimneys anywhere in Germany. But nothing has materialized on this aspect as yet and a monopolistic situation prevails. One cannot agree to the present monopolistic situation as it is unfair to both consumers and chimney sweeps by limiting employment opportunities by restricting licenses to few people and income opportunties by restricting number of sweeps and not allowing them to service areas out of their licensed areas. The government must relax this monopolistic condition and system and engage in free market economics.