Tuesday, October 9, 2007

The Disadvantages of Monopoly

A lot of us when they were children, they played monopoly game. In fact, we do not know that this game taught us something bad which called monopoly. Actually, today, almost in every country we can find the monopoly in many fields of products. In fact, the companies that have the monopoly want to make the highest profit as they can. They think they satisfy their customers by following this way. However, monopolies have a lot of disadvantages such a reducing the qualities of the product, reducing satisfaction of the customers, increasing the prices and increasing disadvantages for the employees in the companies that have a monopoly.

According to the www.capitalism.org ( n.d ) the monopoly is a “single seller in a given industry” ( para 1). So when we see only one seller or producer for any product we can consider that as a monopoly. The development of the monopoly started from a long time. We should know that the first people who developed the monopoly were not the economists and the monopolies were available before many years of the theory’s economist. According to Dilorenzo (n.d) “it is a myth that natural monopoly was developed first by economist, and then used by legislator to justify franchise monopolies. The truth is that monopolies were created decades before the theory was formalized by intervention – minded economists, who then used a theory as an ex post rationale for government intervention. ” (p.43). In addition, we should know that the government is the main cause of the monopoly because their policies and rules. According to the Dilorenzo ( n.d) “ during the late nineteenth century , when local government was beginning to grant franchise monopolies, the general economic understanding was that “monopoly” was caused by government intervention, not the free market, through franchises, protectionism, and other means” (p. 44) . Although there are a lot of people support monopoly because it make to them high profits, the governments try to fight monopoly by creating a lot of new rules to stop it because it has a lot of disadvantages and it hurts the economy of the country.

First, monopolies cause reduction of the quality of the products. According to www. bellevuelinux. org (2005) “lower levels of output than would exist if the product were produced by competitive companies” (para. 43). In fact, the company that has a monopoly will buy the cheap primary materials to reduce the total cost of the products. For example, when a company produces air conditioners in some country and it has a monopoly for this product, this company will buy cheap primary materials to reduce the total cost of the producing and that will reflect on the quality of the product. In addition, the company that has monopoly usually does not have good services for their products. For example, in the previous example, the company may open few or no departments or stores to repair their products. As a result, the customers can not have their air conditioners repaired or they can have them repaired difficultly because it is difficult to find the repair stores. So by using cheap primary materials and opening few or no stores or departments to repair products, monopoly reduces the quality of the product.

Second, monopoly causes a reduction satisfaction of the customers. Because there is only one provider or producer, the customers have no choices and they are coerced to buy this product when they need it. For example, in Saudi Arabia, there is only one local travel airlines to travel from city to another city inside Saudi Arabia. So the people are coerced to travel with this airlines and its disadvantages. In addition, the company that has monopoly usually does not have good services. For example, it had known that Saudi Arabian Airline has very bad service. In fact, the flights always late and they do not take off on time. When you want to travel with a local flight you may wait have or one hour to ride the airplane. Because monopoly cause no choices for the customers and may cause bad service, the satisfaction of the customers will be reduced.

Third, monopoly causes increased prices. Because there is only one company can provide or produce the product, the company can increase its prices to make the highest profit. According to the Stigler (n.d) “successful monopolist earn extralarge (sic) profits by raising prices above what they would be with competition, … the monopolists ( and perhaps the employees ) gain” (para. 5). In fact, this policy will hurt directly the customers. For example, in 2002 in Saudi Arabia, there was only one telecom company, Saudi Telecom Company, and it had high prices in the call’s cost because there was no competition and they wanted to make the highest profit. In contrast, Saudi Telecom Company reduced its prices because there are many companies in the telecommunication field. According to www.stc.com.sa (2007) “Saudi Telecom announced the launch of its new promotion for Afaq DSL Shammel reaching 55% starting September 29th, 2007.” (para. 1). So the competition is coerced Saudi Telecom Company to reduces its prices. In addition, the company that has monopoly may increase its prices because it is a victim of the company that provides the primary materials. For example, imagine there is only one cars producer in a specific country and the producer depends on one company to receive its primary materials. If the provider of the primary materials raises its prices, the cars producer also will increase its prices. If the steel prices increase from the provider from $ 1000 each ton to $ 1100 each ton, the producer will increase the car’s prices with same rate. So because the companies want to increase their profit and they follow the provider prices, the monopoly cause increased prices.

Fourth, monopoly may cause many disadvantages for the employees of the company that has a monopoly. Actually, company can decrease the salaries for its employees because it wants to reduce its total cost. For example, if we imagine one private hospital in a specific country, the management of the hospital may give the doctors in the hospitals a small salary because doctors can not change their job because there is only one hospital in the country. In addition, the company that has monopoly will offer little motivation for its employees such a training courses or premiums. For example, in previous example, the management of the hospital does not offer any motivation for its employee because it knows that the employees can not find other hospitals in the country. So the monopoly causes many disadvantages for the employees such unfair salaries or little motivation for the employees.

On the other hand there are many opinions that support the monopoly. In fact, some opinions say that the monopoly may help the company to import their products and compete with foreign companies. According to www. economicshelp.org (n.d) “A domestic firm may have Monopoly power in the domestic country but face effective competition in global markets” (para.3). Because the companies that have monopoly usually have a lot of profits, they can produce more products and import them. However, this is not a complete picture of the competition with the foreign companies. There are many factors play an important role for the companies to success in global markets. First, if the company do not consider different cultures, it can not be successful in global markets. For example, there are many Arabic gulf airlines do not sell wines in its international flights. As a result, a lot of customers do not travel with them for that reason. In addition, company may face economic problems. For example, the company may face rising of the translation cost. If the company wants to import cars and the translation cost is rising, the company will add this cost to its products and that may cause decrease of its competitiveness. So for these reasons, the company that has a monopoly may not be successful in global markets.
In conclusion, decreasing the qualities of the goods, decreasing the gratification of the consumers, uprising the prices and decreasing the advantages of the employees in the companies that have monopoly are the main negative effectives of the monopoly. Actually, to increase the satisfaction of the customers and to show the fair prices of the products, the govermnets in the world should start to fight the monoply by changing their policies and rules that support the monopoly.

Refrences
Asked frequaintely questions. (n.d) Retrieved September 20, 2007, from
http://capitalism.org/faq/monopolies.html
Dilorenzo, T ( n.d ) The myth of natural monopoly. Rertieved September 20 , 2007, from www.mises.org/journals/rae/pdf/RAE9_2_3.pdf
Monopoly: A Brief Introduction. ( 2006,Dec 1). Reterieved September 20, 2007, from http://www.bellevuelinux.org/monopoly.html
Stigler, G. (n.d) . Monopoly. Retrieved October 2, 2007, from
http://www.econlib.org/LIBRARY/Enc/Monopoly.html
Saudi Telecom news. (n.d) Retervied October 4, 2007, from
http://www.stc.com.sa:80/cwsPortal/cws.portal?_nfpb=true&_pageLabel=crp_mc_news&_nfls=false
Advantages of monopoly. (n.d) Reterieved October 4,2007, from
http://www.economicshelp.org/microessays/markets/advantages-monopoly.html

2 comments:

Vernal said...

thanks.

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