Topics: Monopoly, Economics, Economic growth Pages: 7 (2219 words) Published: April 27, 2013
MBA Economic Assignment
Question 2: 
Many analysts in both developed and developing worlds have heavily criticized the cases of monopolies. Discuss using relevant examples whether it is a good policy for the government to completely eliminate monopoly power.  Monopoly is a market structure which eliminates any form of competition in the long run. In the short run, the monopolist firm usually enters the market with an apparent disguise of another ‘player’ in the market, however, as time goes by, the said firm tries to gain total control of the market by introducing product variants and price – fixing. The monopolist may be divided into broad categories: a) Coercive, and b) Non – coercive. The coercive monopolist uses unscrupulous political clout, favoritism and coercion to gain control in the market. On the other hand, the non – coercive monopolist uses the strategy of merger and acquisition, cartel to eliminate competition. The most popular method of creating a monopoly power in the market is of course the price – fixing. A monopolist with a strong financial background initially wipes out its competitors by fixing the prices of its products or services lower than its competitors and when bestowed with the “free -playing zone”, it adopts the policy of price – discrimination in different segments of the market to maximize its profit. Monopoly is the crudest form of capitalism and majority of the capitalist nations willingly or unwillingly encouraged the growth of monopolies. In the U.S., Standard Oil became the monopolist power in the production of oil and petroleum and acquired almost 90 percent of the market in terms of both production and distribution. It built its empire without the help of the banks as oil has been a scarce commodity and majority of the oil reserves are found in the Middle – East nations. The industrial tycoon Rockefeller used questionable and manipulative tactics to gain the absolute control over the petroleum market in the United States. By the time Standard Oil got dissolved, the American policymakers already found an opportunity to support and boost the monopolies – atleast for the time being as the investors were enriched by investing in Standard Oil. Rockefeller was a wealthy, ruthless and extremely manipulative businessman who used unscrupulous methods to create shortages in the market forcing his competitors either to abandon their businesses or join him. Standard Oil lost most of its power due to the effect of Sherman Law. In the second case of U.S. Steel, Andrew Carnegie started his steel empire which was purchased by J. P. Morgan and named it as U.S. Steel. It went to acquire almost 70 percent of the American market but in terms of research and innovation, it drew blanks. In order to survive, it called for protective tariffs from the American government in the face of rising competition. Rockefeller as a monopolist was more innovative that J.P. Morgan because he managed to produce Vaseline from the wastes of petroleum products, however, J.P. Morgan was not innovative in his approach and lost his market share steadily to his competitors. The most prominent example of modern day monopoly is of Microsoft owned by Bill Gates. The innovative brain of Gates in terms of coming up with new editions of operating systems, video gaming and programming languages, he actually dominates the global market in terms of revenue as well as its reserves to fight antitrust laws. Both the U.S. government and European Union found Microsoft as a violator of antitrust laws. The strengthening of monopolies could lead to economic stagnation. When 1930’s “Great Depression” occurred, there were monopolist businesses who amassed a wealth of approximately $2 trillion in cash. The huge volume of cash if pumped into the system could have avoided the most serious outcomes for both the United States and the global economy as well. However, monopoly has been the essence of capitalism and in economic world it was popularly...
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