Monopolies and Merger Aquisitions
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Monopolies
The word monopoly means one seller. A firm creates a monopoly by growing so much that it takes a large share of a certain market through takeovers or dominance. A monopoly is an economic situation in which one company or corporation is dominant in a particular market. It allows very little room for entries from other firms. A perfect example of a monopoly in today’s society is the Microsoft Corporation. By being the only dominant in the field, the corporation is able to place their own standards and their own selling prices in the market. This can be a negative on the consumer society. Just like anything else, there are both pros and cons to having a monopoly in an economic society.
There are certain fundamentals a corporation must have that will cause a monopoly to be created. In order to create a monopoly in an industry, one must have the control of a major resource used to create the product and one must have the technological capabilities that will allow that corporation to produce as much output as necessary. Another cause of a monopoly is a natural monopoly, when cost of production declines. Therefore, the cost of production is so low, that the firm or corporation can produce enough products for the entire market and industry. A monopoly is also formed when it takes control of the market through the use of patents because they have control over the production of that product. There are also situations in which the government will grant a legal monopoly to a business with government awarded franchises and licenses.
Many arguments have been debated to find out whether a monopoly in a particular industry is a good or a bad thing. Economists believe a monopoly is not good for the economy, but they do state that there are many advantages to having a monopoly in a market. For one, according to an economist named Mansfield, he believes that “the rate of technological change is more likely to be higher in an imperfectly competitive industry then in a perfectly competitive industry” (p. 9). Also, a market with competition has fewer resources to use. By having a monopoly and being an imperfect competing market, there are more resources available for research and experimenting. The reason for this is that many firms spend their resources on fierce competition and do not have any to spare for their research. Though there are advantages to having a monopoly or few firms in a market, everyone agrees that there must be some type of regulation or restrictions.
Though there are people who support some advantages of having a monopoly, there are many who are firmly against one in the economic society. One of the major problems with an established monopoly is they seem to raise prices vastly and limit the supply of societies’ needs. Monopolies also misallocate resources. However, in a perfectly competitive market, firms are able to create and produce the amount of products needed by society. They are also able to produce them at a reasonable price. Though a monopoly may be the perfect situation for that specific firm, the best market for the consumer and society is a perfect competition market. After all, monopolies raise prices, limit supply, and waste resources. Because monopolies are all about high priced products, the technology in that firm suffers because they do not wish to make cheaper products, so the corporation does not advance technologically.
In the long run, though there may be significant advantages with a monopoly, it is not the best situation for the economy. Monopolies set their own rules, standards, and prices, and there is nothing no one can do. This is why we must have regulations and have laws that restrict maintaining monopolies in the market.
Part II:
Mergers, Antitrust Laws, and Illegal Business Practices
In business and economics, a merger is a joining or a combination of two individual companies into one large company. Mergers are created in order to expand their companies and try to become more dominant in the industry. There are many reasons why a merger