Michael WinshipUGB114 Understanding The Global Environment

Can business monopolies ever be justified?

In this essay I will attempt to answer the question of can business monopolies ever be

justified? I will look at what business monopolies are, why business monopolies happen

and the advantages and disadvantages of business monopolies before addressing the

issue of whether business monopolies can be justified.

A Business monopoly can simply be known as “if a single firm is the sole supplier in a

market, and new entrants are precluded” (Janet Morrison, The International Business

Environment) which indicates that if there is only one business within a market selling

products then they are the only ones selling those products and no other business can

say that they are selling products that are the same otherwise this would not be classed

as a business monopoly as the business would have competitors. Business monopolies

tend to happen through either a series of mergers (sometimes known as integration) in

which different numbers of businesses unite together in order to make one business. A

merger is normally one of the main way of a monopoly forming as this allows operations

to be combined into one and can also mean that the monopoly can happen over a

series of time rather then it happening all in one go. Other than a merger a monopoly

can also happen through a series of contested takeovers in which the takeover of one

business from another is contested, if the takeover is agreed this would form the

monopoly. A monopoly can also happen through the Government, the Government can

give legal monopoly to some businesses through making them nationalized or through

awarding Government grants. The aim of the Government forming monopolies would be

this would allow the Government to control the running of the monopoly and allow the

monopoly to be run in the best interests of the public. Another aim of the Government

forming monopolies would be help benefit the economy and the environment as through

forming a business monopoly this would mean that there would be more money coming

into the economy from the new business operating. A further way in which a business

monopoly can happen is through ownership of patents and copyright protection of the

exclusive ownership of assets, this allows the business that holds the patent to be able

Michael WinshipUGB114 Understanding The Global Environmentto ensure they are the only ones who will be able to sell the product as they have the

rights to the product.

When monopolies happen they can sometimes be investigated if there happens to be

reasons for them to be investigated. If a monopoly needs to be investigated then the

Office of Fair Trading is responsible for investigating mergers at the first instance, if the

merger needs to be referred then it can be referred to the competition commission. The

competition commission is responsible for investigating mergers, markets and

monopolies and replaced the Monopolies and Mergers Commission on 1 April 1999.The

competition commission also regulates industries under competition law in the United

Kingdom ensuring that they do not breach the law.

Business monopolies tend to happen for a number of reasons, one of these reasons is

that businesses that operate a monopoly can charge what they want for products

knowing that there is no other business around that is going to sell the products cheaper

or is going to operate a better service. As a result of this the customers of the business

can be at a disadvantage though as there will be less innovation as the business won’t

have any competitors to compete with. Another reason why business monopolies

happen is that the business can make higher profits as a result of having no direct

competition which can help the business to be able to expand. Although as the business

can make higher profits as a result of having no competition this is bad for the consumer

of the business as they may find that they have to pay more than they thought as a

result of having no direct competitors of the business. A further reason as to why

business monopolies happen is that businesses don't have to cut costs to keep up with

competition and therefore can provide best service possible without compromising

safety. As a result of businesses not having to cut costs this means that the business

will be able to make higher profits as they would not need to spend money on costs.

Lastly a reason why business monopolies happen is that this

Relating back to the initial question of can business monopolies ever be justified? there

are many advantages and disadvantages that could be able to render the question as

true or false. One of the biggest advantages of being a business monopoly is that there

Michael WinshipUGB114 Understanding The Global Environmentare no competitors of the business. Having no competitors of the business would make

business monopolies justified as most businesses would want to have no competitors

and want to be able to ensure that the market is completely theirs. Although in contrast

to this a disadvantage of business monopolies is that consumers of the business may

find that they have to pay more than they thought they would have to pay due to there

being no competition. As a result of the consumer maybe having to pay more for the

product this would render the question of can business monopolies be justified? as no

they cannot, this would solely be on the basis that having to maybe pay more for a

product is not in the best interests of the consumer.

Further indications on whether business monopolies can be justified can be examined

through cases of monopolies from the last few years. One of the main examples of a

monopoly is that of Royal Mail. Up until 2006 Royal Mail was classed as a monopoly

due to them being the only provider of mail in the UK to both businesses and

customers, Royal Mail had held this monopoly for more than 300 years. At the time of

the Royal Mail losing its monopoly the boss of Royal Mail said "We recognize that the

regulator is getting on with his job and welcome faster competition as long as it comes

without unfair restrictions on Royal Mail." (Royal Mail chief executive Adam Crozier)

(http://news.bbc.co.uk/1/hi/business/4274335.stm) Royal Mail losing its 300 year old

monopoly would neither conclude the question of can business monopolies be justified

as being yes or no. What could be said from the loss of the Royal Mail monopoly is that

the consumer will benefit as there is now more choice for the consumer when it comes

to sending and receiving mail. This alone could argue the answer of the question of can

business monopolies ever be justified as being that they cannot be justified as if they

were justified the consumer would have less choice as to the provider that they would

like to use as they would only have Royal Mail as one of the main ways of sending and

receiving mail.

Another reason which could relate to the question of can business monopolies ever be

justified is that of market power. A monopoly in a market can normally happen if a

business owns the majority of the market, take for example Tesco – Tesco owns rhw

majority of the UK supermarket market which means that it holds a kind of monopoly

Michael WinshipUGB114 Understanding The Global Environmentagainst the other supermarkets in the market. This case of Tesco owning the majority of

the UK supermarket market would argue the question of can business monopolies ever

be justified as being that they cannot. This would be based on the premise that as

Tesco owns the majority of the market it will be taking the more of the customers and

preventing the other stores in the market from gaining customers. As a result of the

other competitors in the market not being to gain customers through Tesco owning the

majority of the marketing, this makes the chance of Tesco losing its power more

unlikely.

In conclusion to the question of can business monopolies be justified? i would say that

the question cannot be given a define yes or no answer. I believe that there cannot be

a define answer as there is more than one way of proving that yes they can be justified.

There is also more than one way of proving that monopolies cannot be justified, take the

advantage of having no competitors this would be a good way of answering the

question of can business monopolies ever be justified as this is a firm answer of yes

they can be justified from the business point of view as they will be no one trying to

undercut the business and trying to gain customers from them.

Another view point that could render the question of can business monopolies ever be

justified as no they cannot be justified is that this is bad for the consumer as a monopoly

will mean no direct choice for the consumer. No direct choice for the consumer means

that the consumer may end up paying more for items that they did not want to pay as

much for. This being bad for the consumer would render the question of can business

monopolies ever be justified as being that it cannot be justified as the consumer should

be the one who is in always put first and therefore if the price for something is too high

then the consumer will not pay for it.

Michael WinshipUGB114 Understanding The Global Environment

Bibliography

Michael WinshipUGB114 Understanding The Global EnvironmentBooks

The International Business Environment

Websites

www.tutor2u.net/economics/GCSE/revision_notes/firms_monopoly?

www.tutor2u.net/economics/content/topics/monopoly/causes_of_monopoly.htm

www.news.bbc.co.uk/1/hi/business/4274335.stm

http://en.wikipedia.org/wiki/Diseconomy_of_scale