Essay/Term paper: Monopolies in a capitalist economy

Essay, term paper, research paper:  Humanities

In a capitalist economy there are both wanted and unwanted monopolies. However, in a capitalist economy certain monopolies are needed. Monopolies have a big impact on the economy and the consumers because of the amount of control that the monopolies have on the economy. There are certain times when it is best to have monopolies then others, it really depends on the status of the economy. There is no doubt that monopolies do indeed play a critical role in a capitalist economy, but sometimes there are negative effects.



It is indeed true to say that not all monopolies are unwanted in a capitalist society. An example of a monopoly that is not unwanted is that of a public utility, like SDG&E (San Diego Gas & Electric). These produce goods and services that are vital to the public's well being as far as functioning goes. Public utilities are an example of a pure or natural monopoly. A pure or natural monopoly is a single firm in an industry. This is the most effective way to provide very important goods and services. An example of a public utility monopoly that affects our everyday life is that of SDG&E. They are the only power company in San Diego County and thus they have a monopoly on San Diego. This, however is the kind of monopoly that the government likes to keep running and in operation because they know that we cannot do without for very long. If SDG&E decided to go out of business there would be no power supplier for all of San Diego County. In addition, because of the fact that SDG&E is the only gas and electric provider they can name almost any price and we have no choice but to comply with their demands unless they can find a dependable alternative, like solar power.



The impact of monopolies is felt very heavily on the consumer. The biggest effect of a monopoly in a market is that it drives up the prices of the product in that market (South West, pg. 179). This happens because there is no competition and no other producer to drive prices down. The government has often tried to break up monopolies when they are presented because it will put a negative impact on the economy. There has even been legislation passed against monopolies. An example of a piece of legislation is the Sherman Anti-Trust Act which stated "any combination or conspiracy in constraint of trade" (www.encarta.com). This law was passed in 1890 and immediately outlawed. Also, in 1914, the government passed the Clayton Anti-Trust Act, which made activities such as price discrimination and tying contracts illegal. This also forced a buyer or seller or deal exclusively with a particular firm (www.encarta.com). In recent news there has been the case of the Government vs. Microsoft. The US Government claims that Microsoft violated antitrust acts with its Window's operation systems (www.encarta.com). They say that Microsoft has a monopoly and they are right. There are no other operating systems (substitutes) out there for personal computers. In addition because of this so called monopoly, Bill Gates the owner of Microsoft, was forced by the government to spilt up his company into different programs but keep the Microsoft label attached (ie. Microsoft Word, Excel, Outlook and so on).



The best time and place to present a monopoly in a capitalist economy in small towns and with public utilities anywhere. For example, on your way to Anza Borrego, there is this one small town that has only one gas station which sells gas at extremely high prices. The advantage that the owner has and makes this similar to a monopoly is that that is the only gas station within twenty miles of any direction. So, if you want gas then you are going to either pay the high and outrageous prices or drive a lot farther for gas somewhere else that is a little bit cheaper. In addition, public utilities out in the boonies (like Barstow) have extremely high water prices, yet it is vital to have enough water for all of the community surrounding. Another contributing factor to the high water prices is because there is only one water company that serves that particular area. Because of certain climates and counties that do exist it is possible and more likely for certain types of companies such as utilities to come in and offer their service at any price they choose (South West, pg. 178). Unfortunately it is so, that most of the time you have no choice but to comply with their prices unless you can find a cheaper and more reliable alternative.



In a capitalist economy it is a given that there will be monopolies playing critical roles as well as contributing to society. Depending on the type of monopoly and how it effects the consumers are the basic determining factors in whether or not the monopoly is wanted or unwanted. In conclusion, it is extremely important to have monopolies because of the simple fact that they are giant contributors, in terms of the economy.





























Works Cited



South-Western: Economics. Chapter 9. Economic Business Firms in the Economy, 1993.



Monopoly. Encarta Online Encyclopedia. http://www.encarta.com, 1996.