Custom «Monopoly Powers» Essay Paper Sample
According to Mukherjee, Mukherjee & Ghose 2004, monopoly refers to state where there is only one principal supplier of a commodity or a service in the market that have no significant substitutes. Usually, in such a market structure, there is no competition. There are various factors that lead to monopoly. These include; ownership of an essential raw material by a single firm, being the only one in possession of production rights among others. Such a market structure is theoretical because in most instances products have substitutes. However, there are some firms in existence which have monopolistic powers with gives them the potential to control prices of goods in the market. Such firm commands a tremendously large percentage of the market share.
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Monopoly usually does not have any direct benefit to the consumer, basically all the advantages of monopoly accrues to the firm having the monopolistic powers. However, in some cases monopoly has led to increased competition between firms struggling for market control. In a situation where two or more firm emerges from a competition with monopolistic powers, some economists argue that the government can for the two or more to consolidate (American Bar Association 1981). These economists maintain that when the firms have merged, there results an increase in the quantity of products produced and this increase in the quantity of products in turn leads to the reduction of prices (American Bar Association 1981), and thus beneficial to consumers. It is also worth noting that such competitions are only evident in monopolistic competition market structures which might come as a result of differentiation of goods but serving the same consumer needs.
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Conversely, monopolies have a vast number of cons to consumers compared to advantages. Firms with monopoly powers tend to charge higher prices (Campbell & Craig 2005). Such firms as observed by economists are inefficient due to lack of completion. Campbell & Craig 2005 proceed to write that the customers a deprived of choices of goods and, therefore, in the event of failure in the supply by the company due to any give reason, then there is no alternative supply to meet the demands of the consumers. It follows therefore, that a monopolistic market structure is exploitative to the consumers.
To save the consumers, the UK various business policy makers have formulated policies to ensure that businesses compete at a level ground. The most prominent one is The Competition Act of 1998 (Campbell & Craig 2005). This policy define Monopoly as a situation where a single business commands a market share of more than 25% (Campbell & Craig 2005. This policy, which is in line with the European Union Law, prohibits business firms from carrying out restrictive practices such as “collusion” or formally agreeing on the pricing of goods. The act also provides mechanisms under which firms may merge, giving the state the power to block such a mergence that might see the two (or more) controlling above 25% of the market (Campbell & Craig 2005).
The Enterprise Act of 2002 is yet another policy that was formulated with the intention of reducing the ministers powers on issues pertaining to mergence and formation of cartels by business organizations. The provisions of this act are in line with the Competition Act though it suppressed the Fair Trading Act of 1973(Campbell & Craig 2005).
Other initiatives by the UK were the creation of regulatory bodies such as the OFT, Utilities Regulatory Bodies such as Office of the Regulator for UK communication Industries (OFCOM) among others.