Monopolies

Captive markets
Duopoly

Nature

Monopolies are large economic associations, such as cartels, syndicates, trusts, or concerns, which are owned by individuals, groups, or shareholders and which control industries, markets, or entire economies through a high concentration of capital and production. Their aim is to deny other producers the opportunity to compete. Their domination of the economy is the basis for their influence on all spheres of life. A monopoly may be granted by the state for certain purposes or may be acquired through the normal processes of business competition. In present day economics, a monopoly is presumed to exist when one firm has one third of the market, but the situation is considered to be more serious if three or four big firms have over half the market.

Background

The increase in the amount and concentration of capital necessary for the formation of a monopoly was in part assured by greater centralization through the merger of independent companies. In the USA the first great wave of monopoly mergers occurred in the 1890's and early 20th century, when giant companies were formed bringing entire industries under their control, such as metallurgy, the petroleum industry, and the auto industry. The second great wave of monopoly mergers in the USA came on the eve of the 1929-33 depression, when monopolies were formed in the aluminium, glass, and other industries. Other forms of monopolization developed in the European capitalist countries, notably, syndicates and cartels. Cartels were also created internationally as a form of international monopoly.

After World War II new forms of monopoly association arose: the conglomerates, which became particularly widespread in the USA. The conglomerates brought together the most diverse industries, having no production connection and not even linked by common raw material or marketing conditions. The formation of conglomerates resulted from the increased concentration in the mid-20th century of scientific research and management. In the conglomerates, capital can flow from one branch to another, bypassing the traditional capital market.

Claim

Monopolies can retard progress, in the technical sphere and in living standards, if it threatens profits. A monopoly economy is 'the exact opposite of free competition' (Lenin).

Counter-claim

Natural monopolies exist where the economies of scale make it very difficult or impossible for market entry to take place and a monopoly by a single supplier is the most efficient solution. Typically such natural monopolies include infrastructure or utility industries based upon networks such as electricity, water, gas, roads, railways, harbours and airports. However, a distinction should be made between those core activities of a natural monopolist where such economies of scale really exist and associated activities over which it has acquired a monopoly because of regulatory entry barriers. In many developing and other countries, even where market entry might be possible, there may be a shortage of enterprises able and willing to compete in these areas.

Because of the high concentration of economic resources at their disposal, capitalist monopolies have the potential to accelerate technological progress. A state monopoly of foreign trade is absolutely necessary as a defence against foreign economic and trade expansion. It promotes maximally affective export and import operations and guarantees the independent development of the national economy and the planned character of foreign trade.

The development process is best served, at least initially, by efficient monopolies. Competition can be introduced at a later stage through deregulation. This may however underestimate both the positive effects of competition upon efficiency and the difficulties of taking ex post facto corrective action rather than preventive action.