Question

Why monopolies arise and what governments can do in face of monopolies?

Answer 1

There are times where the government initiates monopolies, establishing a monopoly given by the government, or a monopoly of government. In many respects, government-granted monopolies often resemble closely government monopolies, but the two are distinguished by the monopolist's decision-making structure. Under a government monopoly, the monopoly holder is officially the government itself and the group of people making business decisions is an entity under the direct control of the government. On the other hand, in a monopoly granted by the government, the monopoly is enforced by statute, but the monopoly holder is formally a private company which makes its own business decisions.

In a monopoly granted by the government, the government gives a private person or a company the right to be a sole supplier of a good or service. Potential rivals are removed from the market through legislation , regulation or other policy compliance mechanisms. Intellectual property rights such as copyright and patents are monopolies which are issued by the government. The Dutch East India Company, in addition, offers a historical illustration of a monopoly given by the government. Under mercantilist foreign policy, it enjoyed exclusive trade rights with colonial possessions.

In certain cases the government may give exclusive rights to a individual or company to manufacture a product or service, allowing them to monopolize the market for that good or service. Intellectual property rights are an important example of legal barriers that give rise to monopolies, including copyrights and patents. Natural monopolies arise when a single corporation can meet the entire demand of the industry at a lower cost than any combination of two or more smaller companies. Suppose , for example, that there are two companies in the market with a natural monopoly and each of them produces half the quantity generated by the monopoly. The total costs of the natural monopoly are greater than the sum of the total costs of two companies that manufacture the same amount.

There are cases where a government agency is the sole supplier of a specific product or service and the legislation prohibits competition. For example, in many countries, in some or all of the services, the postal system is run by the government with competition prohibited by law. Government monopolies have also traditionally been widespread in public utilities, telecommunications networks, and railroads. In other cases, government may be a partner involved in a monopoly rather than a sole proprietor. This will make it more impossible for rivals to compete on a level playing field.