Are Monopolies Bad?
What is monopoly power? While that may seem like a very straight forward question for a very straight forward question, it turns out that it’s a little greyer than what I had originally thought after listening to Dr. Per Bylund’s lecture over the topic. Definitions had come into play about what each word in the phrase meant. If a monopoly is truly a bad thing. What makes a monopoly. And what makes a monopoly bad?
At the beginning he had asked the audience what the definition of each of the words in the term ‘monopoly power’. After some slight deliberation it was settled that the word monopoly was just a descriptive word to describe the number of businesses in a market because while there are monopolies there are also other words such as oligopoly which simply means that instead of one business there’s two or more. Dr. Bylund had also described that in a way, we as people are all monopolies simply because the labor that we offer. If you think about it in a deeper sense, each person does a job slightly differently and some offer efficiencies in ways that others can’t and vice versa. Essentially each person is their own market. So, while monopoly is an easy word to define, the word power became a word that the lecture hall had a slightly more difficult time defining. Yet it’s power that’s the important word in the phrase of monopoly power.
Power is something that can have a different definition to everyone that interprets it. For sake of simplicity of the essay I’ll narrow it down to the definition that seemed to be the most accepted by Dr. Bylund and then add my own twist on that definition. The original definition had been “something different that adds value to some but may add less value to others”. My own definition for the sake of viewing it as if I’m looking at a market is “whomever the consumer values the most” so while these two are different they are also very similar and when described in this way if there are no barriers to entry in a specific market means that power is something that can be distributed differently constantly. Each and every consumer values a product differently, some value something more while other’s value something less and in my eyes that means a corporation will always open the door for competition.
It's important that for power to not be something negative that competition is allowed. Dr. Bylund had described that monopolies become an issue when competition is suppressed. This suppression is often seen through the use of regulations. Monopolies are often not something that is seen as positive in this light because it’s causing a burden from anyone trying to enter that specific market. This creates a negative impact because then price inflation is often observed but the consumer is forced essentially to pay an outrageous price because there is no other option. When there are no regulations (in a market sense) you see that if a company raises it’s prices too high then that opens up a space for a new corporation to add a very similar value to the consumer at a lower rate, thus taking away the monopoly and making that specific market balanced again.
We often see monopolies arise because of innovation. As mentioned before a monopoly is just a company that is one in a specific market and when there is innovation in a market that means they are the one and only to offer that product or service to the consumer. Dr. Bylund had mentioned that this is because entrepreneurs strive to satisfy the consumer and when they make these new innovations that others don’t have, a monopolist is born. This causes other companies to create innovations to satisfy the consumer to try and bring more business back to themselves. This means that there is constant movement in markets which leads to in theory better services and products for consumers.
Through this semester as a class the only example that comes to mind instantly that as a class, we’ve discussed numerous times are hospitals and the “certificate of need” that essentially makes hospitals have negative “monopoly power”. For a brief description of this certificate it essentially means that in order for a new hospital to be founded, all of the hospitals in that area need to sign off that there is a need for another hospital in that area. Which as you can guess, wouldn’t happen often as it would take away business. Because of this particular regulation we see a massive inflation of price that hospitals can charge as there is essentially not enough competition to drive prices down and not enough competition to help drive innovation forward in the industry as a whole. This is what I would say is negative monopoly power.
Through listening to this lecture as well as class in general, it has open my mind to different concepts that would require me to think outside of the box. I would say that before the lecture a monopoly was a massive negative that stunted a market from growing and would be a negative for the consumer when in reality it’s not the monopoly itself but regulations. A monopoly just opens the door for innovation if exit and entry are open.