Legal Monopoly
Candlefocus EditorA legal monopoly is by design an inefficient economic structure, since business operations and decision-making are not limited by competition, relying instead on governmental subsidies and government-granted monopolization, rather than market forces. For example, private companies may receive tax breaks or privileged contracts from the government, as well as guaranteed access to resources like raw materials. This can effectively shut out competition, allowing a company to become the sole supplier of a product or service, or charge whatever it wants for it.
In some industries, a legal monopoly is seen as necessary for the efficient allocation of resources and development of new technology. In the United States, natural resources are typically owned by the government, and they will sell or lease the rights to exploit them only to certain companies; so, for example, a company that wants to build a new power plant may get exclusive rights to use a certain piece of land, avoiding the costly and possibly controversial process of bidding wars over the area. Moreover, in some industries, such as high-tech areas, governments must encourage research and development and maintain close relationships with various companies, in order to create the most cutting-edge technology.
Monopolization of an industry can also cause prices to rise, as companies do not have the same natural competition to push them to offer discounts on products or services. Additionally, it can lead to companies over-investing in marketing and advertising in order to compete for consumers’ attention, rather than trying to be better than their competitor.
However, there are certain antitrust regulations in place that limit the amount of power and influence a monopoly can have. For instance, most legal monopolies are closely regulated and policed by the government so that companies are prevented from colluding and limiting competition in a market. Additionally, antitrust legislation requires firms to offer fair opportunities for competitors to enter the market, known as open entry policies, where customers retain the right to switch to competitors.
In conclusion, a legal monopoly is an economic structure granted by the government, and while it can grant certain advantages to companies, it can also lead to higher prices, decreased competition and limited innovation. Despite this, in some industries it is deemed necessary in order to ensure the efficient allocation of resources and development of new technology. Despite this, governments must closely monitor such monopolies to ensure open entry policies and combat any anti-competitive behaviors.