In terms of monitoring and controlling mergers, monopoly power can result from a merger between two or more dominant firms leading to a ‘substantial lessening of competition’.Ī complex monopoly is a situation where a number of firms act as though they were a single firm – for example, by jointly raising prices at the same time.Ī legal monopoly is a firm that is granted monopoly status by a government.Ī natural monopoly is a firm which owns a single infrastructure, such as a gas or electricity provider, although several firms may operate services which use the single infrastructure. Furthermore, the monopolist can reduce price to just below the average cost of potential entrants, and limit entry – a practice called ‘limit pricing’. When faced with the threat of a potential entrant a monopolist could even drop price below P1 to deter entry. Although maximising profits would occur at the output where MC = MR, the firm can make super-normal profits over the whole range between A and B – given that AR is above ATC over this range. If only one company in a country makes widgets, for example, that company can be said to have a monopoly on widgets. ![]() Here, a monopolist is a price maker and faces a downward sloping demand curve. Technical Definition of Monopoly In the technical language of economics, a monopoly is an enterprise that is the only seller of a specific good or service in its market. Monopoly power is the extent to which a firm can influence and even ‘set’ the market price or influence the quantity supplied to the market, and also the extent to which conditions of business are influenced by a single firm. Given that ‘pure’ monopolies are rare, regulators and other agencies often consider the extent of monopoly power in a market to determine whether intervention should take place. (Tomorrow: a full response to Adam’s Master Switch review.A pure monopoly means a single seller with no competitors. … Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.” Microsoft’s Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Adam says the piece “ completely ignores the competition taking place among many of these giants.”įrom the Wall Street Journal: “There are digital Kashmirs, disputed territories that remain anyone’s game, like digital publishing. But it doesn’t mean there isn’t a monopoly right now. That is exactly the definition of monopoly.įinally, whether the monopoly may disappear tomorrow is an important question. I post this corrective because, for example, Techdirt has become confused by Adam’s post, writing that “domination of a market, by itself, does not create a monopoly.” Actually, Techdirt, it does. It is abuse of monopoly that is actionable. ‘Mono’ means single and ‘Poly’ means seller. The key is understanding - and this is where a law degree can come in handy - that monopoly by itself is not unlawful in the United States. Meaning and Definition of Monopoly: Monopoly is made of two words’Mono’ and ‘Poly’. Twitter’s market may be small, but the size of the market isn’t the point. There are some lost gains from trade, from buyers whose willingness to pay is above marginal cost, but below. Another way to see this inefficiency is that the monopoly always chooses a price that is above marginal cost. For example, economists consider a policy or system that results in the unequal distribution of income and wealth to be inequitable. eBay, online auctions.Īmazon and Twitter are closer cases it all depends on market definition. Monopoly creates a deadweight loss, due to the fact that the monopoly restricts supply below the socially efficient quantity. In microeconomics, equity refers to the distribution of income and wealth among individuals, households, or other economic units. ![]() Apple, portable music players and iTunes downloads. To be more specific, by the economic and legal definition, in one or more markets, Google, Apple, Facebook, and eBay are pretty clearly monopolists. ![]() The point was that these are firms in the early age of monopoly, indeed in a kind of Golden Age. ![]() But I never said in the Wall Street Journal that the Internet monopolies are unlawful. What Adam is thinking about is what a lawyer would call an “actionable” or “unlawful” monopoly or perhaps a monopoly that violates s. There is no further requirement that the firm be evil, gigantic, have caused consumer harm, be long-lasting, or anything else. means an entity, including a consortium or government agency, that in any relevant market in the territory of a Party is designated as the. That is the beginning and the end of the definition. Hence this corrective.Ī monopoly is any firm that has a dominant share in the market for a given good or service (legal definitions range between 40% – 70%) resulting in power over that market. Adam Thierer’s claim that I am redefining monopoly in my Wall Street Journal piece is sowing confusion and misleading the public.
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