Monopoly

• Author: Jeffrey Lehman, Shirelle Phelps

Page 102

An economic advantage held by one or more persons or companies deriving from the exclusive power to carry on a particular business or trade or to manufacture and sell a particular item, thereby suppressing competition and allowing such persons or companies to raise the price of a product or service substantially above the price that would be established by a free market.

In a monopoly, one or more persons or companies totally dominates an economic market. Monopolies may exist in a particular industry if a company controls a major natural resource, produces (even at a reasonable price) all of the output of a product or service because of technological superiority (called a natural monopoly), holds a patent on a product or process of production, or is otherwise granted government permission to be the sole producer of a product or service in a given area.

U.S. law generally views monopolies as harmful because they obstruct the channels of free competition that determine the price and quality of products and services that are offered to the public. The owners of a monopoly have the power, as a group, to set prices, to exclude competitors, and to control the market in the relevant geographic area. U.S. ANTITRUST LAWS prohibit monopolies and any other practices that unduly restrain competitive trade. These laws are based on the belief that equality of opportunity in the marketplace and the free interactions of competitive forces result in the best allocation of the economic resources of the nation. Moreover, it is assumed that competition enhances material progress in production and technology while preserving democratic, political, and social institutions.

History

Economic monopolies have existed throughout much of human history. In England, a monopoly originally was an exclusive right that was expressly granted by the king or Parliament to one person or class of persons to provide some service or goods. The holders of such rights, usually the English guilds or inventors, dominated the market. By the early seventeenth century, the English courts began to void monopolies as interfering with free of trade. In 1623, Parliament enacted the Statute of Monopolies, which prohibited all but specifically excepted monopolies. With the Industrial Revolution of the early nineteenth century, economic production and markets exploded. The growth of capitalism and its emphasis on the free play of competition reinforced the idea that monopolies were unlawful.

In the United States, during most of the nineteenth century, monopolies were prosecuted under COMMON LAW and by statute as market-interference offenses in attempts to stop dealers from raising prices through techniques such as buying up all available supplies of a material, which is called "cornering the market." Courts also refused to enforce contracts with harsh provisions that were clearly unreasonable...