monopolistic competition

This has already been addressed, but I took out this segment,

Monopolistic competition

Main article: Monopolistic competition

Industries which are dominated by a single firm may allow the firm to act as a near-monopoly or "de facto monopoly", a practice known in economics as monopolistic competition. Common historical examples arguably include corporations such as Microsoft and Standard Oil (Standard's market share of refining was 64% in competition with over 100 other refiners at the time of the trial that resulted in the government-forced breakup). Practices which these entities may be accused of include dumping products below cost to harm competitors, creating tying arrangements between their products and other practices regulated under antitrust law.

Monopolistic competion has an unfortunate name, as it actually includes many firms, and is closer to perfect competition than monopoly. It is not a type of monopoly, and indeed, without government intervention (not alluded to in the deleted excerpt), monopolies would not act as firms in monopolistic competition would. Akshayaj 19:01, 25 July 2006 (UTC)[reply]

Regarding AT&T example

Bold textItalic textThe example of AT&T sounds like an argument in favor of the break-up: service would not suffer, so we should break it up. I personally had a live radio debate with a rep from AT&T who argued that the break-up would hurt consumers.

Let's make the article NPOV. Describe what a monopoly is. After that, give arguments for and against granting monopolies.

Perhaps there are some circumstances in which monopolies are "good" -- such as municipal water utilities. Some disputed examples would be electric power generation/distribution or cable TV.

The article should shed some light on the Microsoft operating system monopoly (quasi-monopoly? near monopoly) in the PC market -- without getting into all the ins and outs of the court cases -- just the economic issues.

Contestable monopoly in the OS business, possibly harmful (POV) in the applications business.

Who can write this?

Murray Rothbard

The economic incentives for a monoply make it likely that they will sell a lower quantity of goods at a higher price than firms would in a purely competitive market in order to secure monopoly profits Removed:

though Murray Rothbard has shown (Man, Economy, and State, chapter 10) that this is only possible in the case of a government-granted monopoly.

That doesn't make sense to me. What about natural monopolies like the telephone company or railroads. I would expect that they would be able to sustainably charge above competative rates because of the high cost to enter the industry. Please exaplain more if you wish to add this to the article. Thanks. Jrincayc 02:04, 29 Apr 2004 (UTC)

To claim point blank that Rothbard has shown this is certainly POV, but it is perhaps worth mentioning Rothbard's take (and the Austrian School's take more broadly) on the nature of competition and monopoly. The argument goes something like this: government-granted monopolies are able to act somewhat as the classical analysis suggests that they would, because the law forcibly prohibits any competitors from entering the market (and the monopolists themselves don't have to foot the bill for squashing any attempts at trading through the black market). But "natural monopolies," they argue, face "virtual competition" even if they do not face actual competition: specifically, they have to set their quantity and price (and engage in entrepreneurial activities) with the expectation that the closer they charge to classical monopoly prices rather than equilibrium prices, and the less they invest in entrepreneurship and research, the more of an incentive and an opportunity they create for entrepreneurs to enter the market to compete with them. (They'd also point out, quite rightly, that heavily subsidized and regulated industries such as the railroad and telephone infrastructures are not the best case studies in the action of "natural" monopolists....) Radgeek 19:49, 17 Jul 2004 (UTC)

Historical Examples

Why isn't Standard Oil listed here as one of the historical examples?

    I agree, the John D. Rockefeller case is a prime example of monopolies.  He used his power to
put other gas companies out of business for his own financial gain.  He was found guilty for the
case, and was a very large part in the time and even today, as we see gas prices fluctuating rapidly. 
 -airtrixxx1080

SALT MONOPOLY

Every monopoly must be considered to be potentially "bad " It may temporarily be "good" so long as there is an alternative - but then it wouldnt be a monopoly

By definition a monopoly allows exclusive sale or purchase of a product or service, however the control and exclusivity of a human need in the hands of another human is at its most dangerous when its basic availability is at stake - sooner or later the exclusivity is mishandled either intentionally or not. Slavery was clearly the ultimate result of monopoly.

Such was the monopoly of the supply of salt - a human need equivilent to the air we breath, the water we drink and the proteins we consume. SALT MADE THE WORLD GO ROUND David Bloch

"By definition a monopoly allows exclusive sale or purchase of a product or service, however the control and exclusivity of a human need in the hands of another human is at its most dangerous when its basic availability is at stake - sooner or later the exclusivity is mishandled either intentionally or not. Slavery was clearly the ultimate result of monopoly"

This passage was unsourced in the article, and does not have an encyclopedic tone. It also did not particularly fit in the article as it is written now. A well written, sourced, encyclopedic section on the human rights effects of certain monopolies may be appropriate (or perhaps should go in a specific article about the salt monopoly). This was none of those; accordingly, I have removed it. Gjc8 02:41, 13 December 2006 (UTC)[reply]

de facto

It says in the article: "A monopoly can also arise from "fair" competition, when a single provider of a good or a service is chosen extensively or exclusively by the marketplace. Such monopolies are termed de facto monopolies." This conflicts with the comments earlier in the article equating a de facto monopoly with a natural monopoly. What is the truth? (RJII) DEC 29

My impression is that a "natural monopoly" is a kind of "de facto monopoly." That is, not all de facto monopolies are natural monopolies (given the definition of natural monopoly in the article). (RJII) DEC 29

This idea probably arises from an intuitive opposition of "de jure" and "de facto"; but the meaning does not permit this. "De jure" is just a synonym for legal (i.e. government) monopoly. But a "de facto" monopoly simply means a near-monopoly or "effective" monopoly - try Googling the term. It isn't actually a classification in the same way as "legal" and "natural"; it's more a qualifier. If you want to put a name to it, maybe monopolistic competition. Rd232 17:23, 30 Dec 2004 (UTC)

Oh, I see where you're coming from - you want to use "de facto" as the name you were searching for in the Talk:Natural monopoly discussion. Sorry, it won't work. Look up de facto. Rd232 17:28, 30 Dec 2004 (UTC)

You're correct that these concepts are not at all the same, and I've edited the article to separate them. I had a lot of trouble concentrating due to off-line distractions, so someone should probably copyedit what I wrote to be more readable. Gazpacho 06:24, 30 Dec 2004 (UTC)

Look like Rd232 disagrees with you and removed your changes and my editing. (RJII) DEC 30

Monopolistic competition

The definition of monopolistic competition that appears in Wikipedia is incorrect. The article claims that:

"Industries which are dominated by a single firm may allow the firm to act as a near-monopoly or "de facto monopoly", a practice known in economics as monopolistic competition."

In fact, monopolistic competition is something else altogether. It was developed almost simultaneously by American economist Edward Chamberlin (1899-1967) and English economist Joan Robinson (1903-1983). It is a hybrid of competition and monopoly which describes well the chaacteristics of some markets such as detergents, shampoo, cereals and other markets with differentiated products. One possible definition is:

"A type of competition within an industry where:

1. All firms produce similar yet not perfectly substitutable products.

2. All firms are able to enter the industry if the profits are attractive.

3. All firms are profit maximizers.

4. All firms have some market power, which means none are price takers." (www.answers.com)

The point about monopolistic competition is that there are many (potentially infinite)differentiated submarkets in which a particular firm is a monopoly (thus it sets price and quantity), but because of free entry and competition across submarkets, none of the firms make profits. It is a blend of competition and monopoly.

This is quite different from the definition given by Wikipedia and should be corrected ASP.

Came here to post about the exact same thing. The description of 'monopolistic competition' in this wikipedia artcle is just wrong.

Illegal‽

Is monopoly or mopolizing illegal in the United Kingdom. Thanks -- Kilo-Lima 20:05, 9 October 2005 (UTC)[reply]

See contestable monopoly theory below. There are plenty of monopolies everywhere. The Beatles is a monopoly on their songs (which is perfectly legal). The illegal for them would be to try to prevent anyone else to sing, or start including, for example, a candy, with every Beatles CD they sell (which would be using music monopoly status to harm candy manufactures).

Effects

Could someone please create a section focusing on the effects of a monopoly? Some are stated, but some are omitted.

For example, I read an academic article in which the author compared a monopoly in software is similar to one in biology. He used this to argue how badly Windows software suffers from viruses.

Also, monopolies do not allow consumers control. In Colorado, the End User Standards is a policy that requires State works to use Microsoft Office because it is the de facto standard. In a sense, their decision is controlled by the monopoly and the vendor, but the decision should be made without these external pressures.

I am sure there are more effects to a monopoly.

Here is a decent article that goes into more depth on the effects (including benefits and bad things): http://www.bellevuelinux.org/monopoly.html

Question

What's the phenomena known as where a company can ensure greater tendency toward monopoly because as it's consumer base for it's product grows, so too does the value of the product? Examples: Microsoft Windows, especially during the 90's, and the telephone in the late nineteenth and early twentieth centuries (that WOULD roughly be the shape of the epoch right?) Thanks. MondoManDevout 11:59, 1 January 2006 (UTC)[reply]

Ok, it's network externalities. MondoManDevout 09:10, 22 January 2006 (UTC)[reply]

Contestable monopoly theory

This page is not complete without mentioning Contestable monopoly theory (aka Contestable monopoly defense). It goes basically like this:

Suppose, in some town there is only one pizza place. It is by definition a monopoly (the only provider of the service blah blah). But it is a Contestable monopoly (which means it does not create additional barriers to entry, and anyone else can rent a place, install an oven and sell pizzas too). And the fact that no one bothers to try means that the prices of the existing pizza place are not higher that they would be in the presence of the competition. Therefore, though a monopoly exists, no harm is done to anyone.

When analysing a monopoly, the key question is whether it is a Contestable monopoly (not preventing other firms from entering the market), or a harmful monopoly (which means, for example: lobbies for new barriers to entry, uses monopoly status in one area to become a monopoly in another etc).

There's the contestable market article. And, yes I agree that the concept needs to be explained here. RJII 00:38, 8 April 2006 (UTC)[reply]

Not sure about accuracy

The article mentions that Sprint and MCI were more efficient than AT&T and attributes this to the break up of the old AT&T into baby bells. This efficiency claim needs to be supported with data. As far as i am concerned the market share that Sprint and MCI had gained were results of the decisions of the management to engage in the price war. This, a bad move from the standpoint of the business, was an effective reduction of the long-term phone rates for the consumers.

Coercive monopoly merge?

This makes no sense:

"A coercive monopoly is one psychology that arises and whose existence is maintained as the result of filiation any sort of activity that violates the principle of a free market and is therefore insulated from competition which would otherwise be a potential threat to its superior status. The term is typically used by those who favor laissez-faire capitalism."

So I looked at the actual article and found that it's the same as this one, only with more detail.

Merge? Salvor Hardin 17:48, 4 May 2006 (UTC)[reply]

That's a common misunderstanding you're having. There is a crucial difference. A coercive monopoly is a specific type of monopoly. A monopoly is simply a situation where there are no competitors. A coercive monopoly is a situation where there are no competitors AND competition is impossible (because of legal restrictions or other coercive measures). Not all monopolies are coercive monopolies. For example, competition may be absent simply because other firms haven't found a way to cut their own costs down enough to offer a comparable price for their product. Competition is possible, but it's not profitable so no competition exists. Or, there can be a monopoly simply because no one has gotten around to trying to compete yet. A coercive monopoly has two conditions. 1) It's a monopoly (meaning their are no competitors) 2) Competition is forcibly prevented (either by the firm itself, such as through extortion, or by government restrictions). A monopoly that exists simply because they're outcompeting other firms by offering better products at lower prices would not be a coercive monopoly. So, no, it wouldn't make sense to merge. This essay by Alan Greenspan is explains it well: [1] RJII 02:27, 17 June 2006 (UTC)[reply]

Definition

I am not convinced the second sentence is accurate. Hence it needs to be sourced.

Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

The lack of substitute goods is not required in the common definition, IMHO, although I haven't looked for sources. (And using Coca-cola as an example where viable substitute goods are available is wrong, as others have pointed out.) — Arthur Rubin | (talk) 21:41, 30 September 2006 (UTC)[reply]

I think the sentence is reasonably accurate - for an example of a similar definition, Britannica states in it's opening paragraph on "Monopoly":

..exclusive possession of a market by a supplier of a product or a service for which there is no substitute [2]

To convince you why it is necessary to exclude substitute goods, consider a market where a company has a monopoly, but where there is a competitive market in a perfect substitute. For example, a company might be the sole seller of red widgets, but be faced with lots of competitors producing green widgets. If widget consumers don't care whether the widgets are red or green, so that red or green widgets are perfect substitutes, then the producer of red widgets is selling in a competitive market and is a price taker. He can't raise his price like a monopolist, because everyone would switch to the competition, so it doesn't make sense to call the market situation a "monopoly". Enchanter 15:59, 1 October 2006 (UTC)[reply]

Isn't the decision as to whether a substitute is "acceptable" up to the consumer? (In other words, in theory, there's no such thing as a "perfect substitute" unless the products are identical and perceived to be identical.)

It still needs to be sourced, even if it is the standard definition. — Arthur Rubin | (talk) 17:33, 1 October 2006 (UTC)[reply]

Yes, the degree to which two goods are substitutes are a matter of consumer preferences and consumer decisions. So whether there is a monopoly or not depends in part on how consumers decide to behave. I'm not sure I follow your argument that "in theory, there's no such thing as a perfect substitute" - it's easy to construct a situation in theory where people are completely indifferent between two goods (such as the red and green widgets in my example above), which is what is meant by "perfect substitute". Enchanter 01:06, 2 October 2006 (UTC)[reply]

You can find some consumer who will care whether the widgets are green or red; therefore I stand by my assertion that "there is no such thing as a perfect substitute." But that's not relevent to the assertion that, for something to be a monopoly, there must not be an acceptable substitute. It still needs a cite in the article. After that, we could argue which is the most common definition in economics. — Arthur Rubin | (talk) 14:26, 2 October 2006 (UTC)[reply]

You're assertion that "in theory, there is no such thing as a perfect substitute" is without any grounding. As I said, it's easy to construct such a situation in theory, you just say "assume that consumers are completely indifferent between two goods".

Maybe what you meant to say is that "in practice there is no such thing as a perfect substitute". Whether that is the case or not is a question to be answered by empirical observation of actual consumer behaviour in the market in question, and might or might not be true depending on what you observe.

You will find plenty of definitions of monopoly elsewhere that say something like "a single seller in the market" without mentioning substitutes. I don't think there is any real issue at stake here about the definition monopoly is in economics; mentioning substitutes is just a more precise version of the definition. A full, detailed article on monopoly will mention at least somewhere the importance of the lack of close substitutes (as the Wikipedia article already does).

By contrast, there are genuinely different definitions of monopoly used in, for example, laws and competition regulations in various countries, which could probably do with a mention in the article.

I fully agree that it's worth citing in the article and would suggest the Britannica reference as being as good as any. Enchanter 22:24, 2 October 2006 (UTC)[reply]

Britannica is a tertiary reference. We should have a secondary reference (an economics textbook, or an article by Greenspan, Keynes, or some other recognized economist). (And "more precise" should not include "less accurate". See accuracy and precision for the relevant concepts.)

I added a citation to support the statement. You can look for the book in books.google.com --_N_e_g_r_u_l_i_o 17:12, 12 October 2006 (UTC)[reply]

Monopolies granted by the state

How about a monopoly which comes about, not by some clever fellow cornering the market, but by government grant? Like a municipality which allows only one utility company to generate electricity or provide cable TV service? --Uncle Ed 19:03, 4 December 2006 (UTC)[reply]

Barriers to entry

I took out the claim that a monopoly has to have barriers to entry. That's not true. All that's required for monopoly is that it is the sole provider. Beyond the classroom 03:17, 21 December 2006 (UTC)[reply]