The document is a report on monopoly that was submitted by two MBA students, Jaymin Patel and Jaimin Upadhyay, to the J.K. Patel Institute of Management. It contains sections on the meaning and features of monopoly, why monopolies arise, types of monopoly, why monopolies can be harmful, arguments for tolerating monopolies, optimal public policy, and two case studies on monopolies in different industries.

1. A
PRESENTATION REPORT (EFM)
ON
Monopoly
SUBMITTED BY
JAYMIN PATEL= (ROLL-23)
JAiMIN UPADHYAy= (ROLL-25)
MBA FIRST SEM
SUBMITTED TO
J.K.PATEL INST.OF MANAGEMENT,
WAGHODiYA, BARODA
ACADEMIC YEAR-2011
INDEX
1

2. SR NO. DISCRIPTION. PAGE
NO.
[1.0] MONOPOLY 3
[1.0.1] Meaning of Monopoly 3
[1.0.1] Features of Monopoly 3
[2.0] Why Monopoly Arise? 5
[3.0] Types of Monopoly 9
[4.0] Why Monopolies Can Be Harmful 10
[5.0] Specious Arguments for Tolerating 12
Monopolies
[6.0] Optimal Public Policy 13
[7.0] Case Study 1: AT&T and Microsoft 17
[8.0] Case Study 2: Standard Oil 19
[9.0] Bibliography 20
2

3. [1.0]MONOPOLY
[1.0.1]Meaning of Monopoly
Monopoly is a market situation which where, there is only one seller of product
with barriers to entry of others. The product has no close substitutes. The cross
elasticity of demand with every other product is very low. Monopolist can sell his
commodity at any price he likes. He has the control over price. However a
monopolist can certainly fix the price at which he sells his commodity, but he
cannot at the same time determine the amount of commodity, that purchaser will
buy. In fact, if he charges a high price, the demand for commodity will be less, and
if he charges a low price. The demand for his commodity will be more. The price
is under the full control of the monopolist but not the demand, demand is
determined by purchaser.
[1.0.2]Features of Monopoly
1. One seller and large number of buyers:
Monopoly is a form of imperfect market structure where there is only one seller
of a product. A monopoly firm may be owned by a person, a few numbers of
partners or a joint stock company. The characteristic feature of single seller
eliminates the distinction between the firm and the industry. A monopolist firm is
itself 'the industry. Under monopoly there are large numbers of buyers although
the seller is one. No buyer's reaction can influence the price.
2. No close substitute:
Under monopoly a single producer produces single commodities which have no
close substitute. As the commodity in question has no close substitute, the
monopolist is at liberty to change a price according to his own whimsy. Monopoly
cannot exist when there is competition.
A firm is said, to be monopolist only when it is the single producer and supplier of
the product which have no close substitute. Under monopoly the cross elasticity
3

4. of demand is zero. Cross elasticity of demand shows a change in the demand for a
good as a result of change in the price of another good.
3. Strong barriers to the entry into the industry exist:
In a monopoly market there is strong barrier on the entry of new firms.
Monopolist faces no competition. As there is one firm no other rival producers
can enter the market of the same product. Since the monopolist has absolute
control over the production and sale of the commodity certain economic barriers
are imposed on the entry of potential rivals.
4. Nature of demand curve:
In case of monopoly one firm constitutes the whole industry. The entire demand
of the consumers for a product goes to the monopolist. Since the demand curve
of the individual consumers lopes downward, the monopolist faces a downward
sloping demand curve.
A monopolist can sell more of his output only at a lower price and can reduce the
sale at a high price. The downward sloping demand curve expresses that the price
(AR) goes on falling ns sales are increased. In monopoly AR curve slopes
downward mid MR curve lies below AR curve. Demand curve under monopoly la
otherwise known as average revenue curve.
5. Patents:
Patents are a subclass of legal barriers to entry, but they're important enough to be
given their own section. A patent gives the inventor of a product a monopoly in
producing and selling that product for a limited amount of time. Pfizer, inventors
of the drug Viagra, have a patent on the drug, thus Pfizer is the only company that
can produce and sell Viagra until the patent runs out. Patents are tools that
governments use to promote innovation, as companies should be more willing to
create new products if they know they'll have monopoly power over those
products.
4

5. [2.0]Why Monopoly Arise?
Monopolies have existed throughout much of human history. This is because
powerful forces exist both for the creation and maintenance of monopolies6. At
the root of these forces is the natural human desire for wealth and power
together with the fact that monopolies can be immensely profitable and provide
their owners with tremendous financial, political and social power.
Monopolistic power existed even in primitive societies because limited technical
knowledge, poor transportation and small, scattered populations left little room
for the emergence of numerous, competitive suppliers for some goods and
services. In medieval Europe, guilds arose as transportation improved, economies
grew and competition increased. Guilds were cartels formed by artisans and
merchants for the purpose of controlling output, setting prices and establishing
restrictions on new producers and sellers.
When nation-states began to emerge in the late Renaissance, monopolies proved
to be a useful device for their leaders to acquire the resources to maintain large
armies and extravagant life styles. Major European nations also granted
monopoly powers to private trading companies in order to stimulate the
exploration and exploitation of new lands in the Americas, Asia, Africa, etc.
Monopolies can arise in some circumstances as the result of normal business
practices that are characteristic of firms in a highly competitive industry. Or they
can arise as a consequence of what economists term anti-competitive practices,
that is, behavior that is intended to destroy competition through means other
than competing on the basis on price and quality (including the quality of services
associated with the product). More specifically, monopolies can arise in any of the
following, non-mutually exclusive, ways:
(1) By developing or acquiring control over a unique product that is difficult or
costly for other companies to copy. This can occur as a result of a purchase,
merger or research and development. An example is pharmaceuticals, which can
be extremely expensive and risky to develop (and which are also protected by
patents), thereby locking out all but a few large, well funded companies with
ample talent. Closely related to this is control over a unique input for a product,
such as a unique natural resource.
5

6. (2) By having a lower production cost than competitors. This can result from
having a more efficient (i.e., more output per unit of input) production technique
or from having access to a unique source of low cost inputs (e.g., a mine
containing exceptionally high grade ore). In some cases, a greater efficiency is the
result of economies of scale, which means that the production cost per unit of
product declines as the volume of output increases due to the ability to use some
resource more intensively (e.g., a steel mill or railroad with lots of excess
capacity).
This category includes natural monopolies. A natural monopoly exists for a
product for which there are sufficient economies of scale such that the product
can be produced or supplied by a single company at lower cost than by multiple,
competing companies. Examples include utilities such as railroads, pipelines,
electric power transmission systems and wired telephone systems. It is often
wasteful (for consumers and the economy) to have more than one such supplier
in a region because of the high costs of duplicating the infrastructure (e.g.,
parallel railroad networks in a region or two sets of telephone wires to every
house).
(3) By using various legal and/or illegal tactics, often referred to as predatory
tactics, aimed specifically at eliminating existing or potential competition, such as
(a) Buying out or merging with competitors,
(b) Temporarily charging prices below cost to drive competitors out of
business (often referred to as predatory pricing or dumping),
(c) Using a monopoly in one product to create a monopoly with regard to
another product (sometimes referred to as the bundling or tying of
products),
(d) Taking control of suppliers of inputs required by competitors or
conspiring with them to raise their prices (or lower their quality of service,
etc.) to competitors
(e) Taking control of, or conspiring with, suppliers of other products used by
competitors' customers,
6

7. (f) Threatening costly litigation (e.g., regarding allegations of patent or
copyright infringements regardless of the legal merits of such claims),
which large companies can easily afford but small companies often cannot
and
(g) Using blackmail or threats of violence.
Horizontal integration is the gaining of control by one company over other
producers or sellers of the same product. The acquired companies can
appear to be quite diverse. Often the acquisition of control is not
publicized, and sometimes different branding is used to create the illusion
of competition. For example, a broadcasting company might acquire
various radios and/or television channels each with a different focus in
order to gain control of most of the entire listener or viewer market in a
region and thereby prevent the emergence of competitors.
Such seeming diversity can also offer other benefits to a monopolist. In
particular, it can be valuable in separating markets, thereby allowing the
monopolist to charge separate, profit maximizing prices in each. It can also
make the existence of a monopoly less conspicuous and less of a target for
public criticism, government intervention and the emergence of new
competitors.
(4) By controlling a platform and using vendor lock-in. A platform is a standardized
specification for a product that allows its providers and users and their products
to interoperate without special arrangement. This reduces the overall costs of
conducting transactions by removing some of the costs of matching up products
with buyers. Lock-in is the practice of designing a product that cannot
interoperate with products made by other companies in order to make it difficult
and/or costly for users to switch to competing systems. Lock-in is also used so
that replacement parts or add-on enhancements must be purchased from the
same manufacturer. Examples would include a computer operating system or a
portable music storage/replay device that is controlled by a single company.
(5) By receiving a government grant of monopoly status, i.e., becoming
a government-granted monopoly. Today this is usually accomplished through the
acquisition of a license, patent, copyright, trademark or franchise. Common
7

8. examples include a franchise for cable television for a certain city or region, a
trademark for a popular brand, copyrights on certain cartoon characters or a
patent for a unique product or production technique.
As governments usually have the final authority regarding the creation,
maintenance and extension of monopolies, public relations, particularly lobbying
and advertising, are important tools for monopolists for convincing politicians to
ignore, approve or even bless anti-competitive acquisitions, mergers, etc. Among
the arguments typically made by monopolists are that such acquisition or merger
is in the public interest because it would allow them to
(a) Spend more money on research and development in order to develop
new and improved products,
(b) Standardize what would otherwise be a chaotic market (i.e., vigorous
competition) and
(c) Reduce costs, and thus prices, through
(d) The reduction of redundant production facilities and employees,
(e) Concentrating production at the most efficient production facilities and
(f) Obtaining greater economies of scale. Monopolists also frequently
support such requests with the claim that they are model corporate citizens
and that they are great contributors to charitable and educational causes.
The term barriers to entry are used by economists to refer to obstacles to
businesses or to individuals wanting to enter a given field. Some of these
barriers occur naturally, whereas others are erected or strengthened by
monopolies in order to maintain or enhance their monopoly positions.
Examples include the extremely high cost of developing new drugs, limited
sources for a low cost input, a dominant platform for software or other
products, patent protection of a low cost production technique, the
difficulty of trying to compete with famous brands and air transport
agreements that make it difficult for new airlines to obtain landing slots at
popular airports
8

9. Monopoly is a term used by economists to refer to the situation in which
there is a single seller of a product (i.e., a good or service) for which there
are no close substitutes. The word is derived from the Greek
words moons (meaning one) and poleis (meaning to sell).
Governmental policy with regard to monopolies (e.g., permitting,
prohibiting or regulating them) can have major effects not only on specific
businesses and industries but also on the economy and society as a whole.
[3.0]Types of Monopoly
Monopolies can be classified in various ways, including according to the degree of
monopoly power, the cause of the monopoly, the structure of the monopoly and
whether the monopoly is with regard to selling or buying.
Frequently, instead of a single company, a monopoly consists of a group of
companies that collude to control prices and quantities. In particular,
an oligopoly is a situation in which sales of a product are dominated by a small
number of relatively large sellers who are able to collectively exert control over its
supply and prices.
A cartel is a type of oligopoly in which a centralized institution exists for the
purpose of coordinating the actions of several independent suppliers of a
product. Probably the best known example today is the Organization of
Petroleum Exporting Countries (OPEC). A problem with cartels and other
oligopolies, at least from the participants' point of view, is the fact that they are
inherently unstable. This is because there is a strong incentive for each individual
supplier to cheat and supply more than its allotted quota; this instability tends to
be greater the larger the number of participants.
In the latter half of the nineteenth century trusts became a popular way to form
monopolies in the U.S. A trust was an arrangement by which stockholders in
several companies transferred their shares to a single set of trustees. In exchange,
9

10. the stockholders received a certificate entitling them to a specified share of the
consolidated earnings of the jointly managed companies. The trusts came to
dominate a number of major industries. The largest and most infamous of these
was Standard Oil, but trusts were also formed in numerous other industries
including railroads, coal, steel, sugar, tobacco and meatpacking.
Although monopoly is most often thought of as referring to sellers, it can also
apply to buyers. A monophony is the opposite of a conventional monopoly in the
sense that there is only a single buyer (or only one dominant buyer) for a product
for which there are multiple sellers. Some companies are both monopolies and
monopolies. By being also a monopolist, a monopoly can increase its profits even
further (i.e., as compared with being a competitive purchaser) by putting pressure
on the companies that supply inputs for its product(s) to reduce their prices.
It is relatively easy for a monopolist to also become a monophonic in some cases
because, by definition, a monopolist has one or more unique products, and thus it
is possible that it would also need some unique inputs to produce those unique
products. Even if a monopolist does not require unique inputs, however, it can
still wield considerable monophony power if it is a large company.
[4.0]Why Monopolies Can Be Harmful
Large monopolies have considerable potential to damage both economies and
democratic governments (although they can be very beneficial for other types of
governments). Unfortunately, the full extent of the damage is usually not as
obvious, at least to the general public, as are the seemingly beneficial effects. And
monopolists often go to extreme lengths to disguise or hide such harmful effects.
Among the ways in which unregulated monopolies can harm an economy are by
causing:
(1) Substantially higher prices and lower levels of output than would exist if the
product were produced by competitive companies.
10

11. (2) A lower level of quality than would otherwise exist. This includes not only the
quality of the goods and services themselves, but also the quality of the services
associated with such goods and services.
(3) A slower advance in the development and application of new technology.
Advances in technology can improve the quality (e.g., ease of use, durability,
environmental friendliness) of products, and they can also reduce their costs of
production. Innovation is not as necessary for a monopolist as it is for a highly
competitive firm, and, in fact, it can be a bad business strategy. Research and
development by monopolists is often largely focused on ways of suppressing new,
potentially competitive technologies (and includes such techniques as stockpiling
patents) rather than true innovation 10. This can be a serious disadvantage,
because economists have long recognized that innovation is a key factor (and
possibly the single most important factor) in the growth of an economy as a
whole11.
The adverse effects of monopolies can be much more noticeable on an individual
level than in the aggregate. These effects include the destruction of businesses
that would have survived had competition been based solely on quality and price
(with a consequent loss of assets of the owners and jobs of the employees) and
prices for products so high as to cause hardship or be unaffordable for some
people.
It is often said, even by those who have negative opinions about monopolies that
"monopoly itself is not necessarily bad, but rather it is the abuse of monopoly
power that is harmful." This statement is an excessive simplification, and it can be
indicative of a lack of understanding of the full extent of harm that can be caused
by monopolies.
The abuse of monopoly power clearly can be harmful to an economy. The
term abuse in this context refers to such tactics as predatory pricing, colluding
with suppliers and the leveraging of a monopoly in one product to gain a
monopoly for another product. But what is often overlooked, even by legislation
whose supposed purpose is to restrain or regulate monopolies, is the fact that
monopolies can be harmful even if they do not engage in such practices.
11

12. If a monopolist engages in behavior that produces results similar to that by firms
in an industry that is characterized by intensive competition (i.e., charges prices
close to cost and does not engage in price discrimination), then there might not
be a problem. Unfortunately, however, this is rare even for a
seemingly benevolent monopolist. The reason is that the very strong incentives to
maximize profits that exist for virtually any business, whether pure monopolist,
perfect competitor or somewhere in between, produce very different results for a
monopolist than they would for a firm in a highly competitive industry. And
monopolists (as is the case with competitive firms) usually do not rank
benevolence as a top corporate priority.
Thus, the management and employees in a monopoly might not at all be aware
that they are harming the economy, especially if their behavior is similar to that
by a non-monopoly. In fact, they may even genuinely believe that they are
benefiting the economy because of their conviction that they are more efficient
and productive than a number of firms competing with each other would be.
Another reason that the positive effects of even a benevolent monopolist would
not be as great as for a competitive company is that innovations that improve
quality and reduce production costs are often the result of desperation. (This is
something that is easy for many owners of struggling businesses to understand,
but is often difficult for others to fully grasp without experiencing it firsthand.)
Monopolists generally consider themselves successful, and thus, although they
often are innovators to some extent (typically mainly in their earlier years), they
usually just do not have that extra motivation to produce truly breakthrough
innovations that smaller companies desperate to gain market share (or to just
survive) have.
[5.0]Specious Arguments for Tolerating Monopolies
The argument is often heard that "the government should leave monopolies
alone, because their success is a result of market competition." This argument is
very misleading for several reasons.
12

13. One is that, in many cases, monopolies that have arisen largely as a result of
illegitimate or illegal tactics (rather than through competition based on lower
prices and superior quality) and they have made great efforts to hide that fact
from the general public and politicians.
A second reason is that, even if a monopoly arises by fully legitimate means, there
are strong temptations for it to engage (even unknowingly) in practices that are
bad for the economy as a whole (e.g., higher prices, lower output and less
innovation than in a highly competitive situation), although such behavior and its
consequences are usually not readily apparent to laymen or to political decision
makers.
It has also been argued that governments need not intervene because
monopolies always tend to break down in the long run anyway due to market
forces. A major problem with this view is that the long run can be many years12,
and the economy and society can suffer substantial damage in the meantime.
Another problem is that this approach does not provide a deterrent to the
creation and abusive behavior of new monopolies.
[6.0]Optimal Public Policy
Public policy with regard to monopolies should ideally be based on what is most
efficient for the economy and society as a whole. For natural monopolies, it is
generally most efficient to maintain the monopoly, but subject it to government
regulation with regard to prices, quality of service, etc.
In the case of monopolies that are not natural monopolies (i.e., products for
which there is no great advantage in terms of economic efficiency to having a
monopoly), public policy decisions should depend in large part on the behavior of
the monopolist. If the monopolist is regarded as charging reasonable prices,
providing high quality products, being innovative and not engaging in abusive
practices, then there might be good reason to leave it alone. One reason to leave
a monopoly alone in such circumstances is to avoid what can be the very
substantial costs involved in regulating it or breaking it up.
13

14. But if it is determined that a monopolist is charging prices substantially higher
than, providing quality lower than, or being less innovative than would occur
under competitive conditions or engaging in abusive practices, then there is good
cause to take aggressive action.
The ways in which governments can intervene to reduce the adverse effects of
monopolies can be classified into three broad categories:
(1) strengthening of existing competition or promoting the emergence of new
competition by such means as encouraging innovation, providing government
contracts to competitors and providing favorable financing to competitors,
(2) Regulating the monopoly to limit prices, eliminate price discrimination, set
quality standards, restrict political activities, etc.
(3) Breaking up the monopoly.
When monopolies are permitted to exist, there are several types of policies that
should be implemented in order to assure maximum benefit to the economy.
They include
(a) Outlawing price discrimination,
(b) Outlawing the use of monopoly power with regard to one product for
the purpose of gaining a monopoly with regard to other products,
(c) Setting standards for quality and
(d) Restricting the direct or indirect political activities of the monopolist.
Because of the strong consensus among economists that large monopolies, and
particularly those that abuse their monopoly powers, can be harmful to an
economy, most industrial countries have enacted laws aimed at preventing anti-
competitive practices and have regulators to aid in the enforcement of such laws.
There has, in fact, been a long history of governments attempting to deal with the
abusive practices of monopolists. For example, in 1624 the English Parliament
passed the Statute of Monopolies, which greatly restricted the king's right to
14

15. create private monopolies in the domestic economy. However, this legislation did
not apply to the monopoly powers granted to companies formed for overseas
exploration and colonization.
The U.S. first attempted to curb monopolies at a national level was through the
enactment of the Sherman Antitrust Act in 1890 in response to the widespread
revulsion to the highly abusive practices of Standard Oil. Despite the subsequent
passage of a variety of additional antitrust (i.e., anti-monopoly) measures, the
Sherman act remains in many respects the most important piece of legislation in
the U.S. with regard to monopolies.
Unfortunately, the degree of enforcement of antitrust legislation has varied
wildly, even within individual countries (or with regard to individual companies),
and it has frequently been based more on political considerations than on
economic merit. This is, of course, due to the great difficulty for governments to
take effective action against even the most abusive of monopolies because of the
exceptional political influence that monopolists tend to acquire and the fact that
the adverse effects of monopolies are often less obvious to the public and to
politicians than are the supposed beneficial effects.
1. Salt has a long history of being a monopoly in much of the world because
it is naturally scarce in many regions and because of the strong demand for
it (particularly for use as a food preservative and as a flavor enhancer). Salt
monopolies have been a very convenient way for governments and large
companies to raise vast amounts of money. For example, the rise of Venice
to greatness is attributed in large part to its salt monopoly.
2. The exception would be if some company had a lower cost of production
than the others, in which case it could become a monopoly if it could expand
its output sufficiently.
3. The law of demand states that the quantity purchased is a negative
function of the price. That is, the higher the price, the less will be
purchased. Interestingly, there are virtually no exceptions to this principle.
In terms of the demand curve that is studied in economics classes, this law
15

16. means that the curve always slopes downward to the right, although some
sections may be horizontal or vertical.
4. This is what economists refer to as the price elasticity of demand. A
product which buyers urgently want and for which they are relatively
insensitive to its price, such as drinking water or table salt, is said to have a
low elasticity of demand. A product for which buyers are relatively sensitive
to its price has a high elasticity of demand. Monopolists will be aware (even
if they are not familiar with this terminology) that different types or groups
of buyers may have different elasticity of demand, and they will take such
differences into consideration in their profit maximizing calculations.
5. Airlines are not generally considered to be monopolies because there is
usually a choice of airlines as well as other modes of transportation from
which to choose. However, individual airlines often have substantial
monopoly power on certain routes and/or for certain times because they
might be the only choice for high speed travel or shipping for a particular
route or for that route at a certain time.
6. The argument could be made that this implies that monopolies are
the natural state of an economy and thus government intervention should
not be used if one believes in a free market economy. However, kings or
other dictatorships have also existed throughout most of history, and thus
it could likewise be argued that dictatorship is the natural form of
government and its citizens should not strive to break it up in order to
attain or restore democracy.
7. Article I, Section 8 of the U.S. Constitution states: The Congress shall
have Power . . . To promote the Progress of Science and useful
Arts, by securing for limited Times to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries.
8. For example, the fair use doctrine allows people to make copies of
copyrighted materials in some situations, trademarks can become invalid if
they are not actively protected and patents can be ignored by the
government if it wants to use an invention for its own purposes.
16

17. 9. Large monopolies can be an efficient means of both raising revenue and
consolidating power for governments whose primary goals are other than
the prosperity of their citizenry (e.g., the accumulation of wealth and
power for their leaders). As economic competition and political competition
tend to go hand in hand, restricting economic competition through the
tolerance for or encouragement of monopolies can be an effective way of
restricting political competition (and thus restricting political freedom). In
fact, monopolies have commonly been used throughout history for these
purposes.
10. There have been a few major exceptions to this. Most notable was Bell
Labs, the research and development arm of AT&T. AT&T was one of the
largest and most pervasive monopolies in recent U.S. history, although a
highly regulated and generally benevolent one. Bell Labs was perhaps the
most prolific source of innovation that has ever existed, and it was
responsible for such revolutionary inventions as the transistor, the single-
chip 32-bit microprocessor, the UNIX computer operating system and
the C and C++ programming languages.
11. For a more detailed look at how monopolies affect technological
advance, see Why and How Monopolies Impede
Technological Advance, The Linux Information Project, and
June 12, 2006.
12. As John Maynard Keynes, one of the most influential economists of the
twentieth century stated so eloquently in what his most famous quote is
possibly: "In the long run we are all dead." (No wonder economics is often
referred to as the dismal science!) Keynes was referring to the Great
Depression of the 1930s and to those economists who advocated letting
the market mechanism eventually restore the economy to prosperity
instead of calling for immediate government intervention.
17

18. [7.0]Case Study 1: AT&T and Microsoft
AT&T was a government-supported monopoly - a public utility - that would have
to be considered a coercive monopoly. Like Standard Oil, the AT&T monopoly
made the industry more efficient and wasn't guilty of fixing prices, but rather the
potential to fix prices. The breakup of AT&T by Reagan in the 1980s gave birth to
the "baby bells". Since that time, many of the baby bells have begun to merge and
increase in size in order to provide better service to a wider area. Very likely, the
breakup of AT&T caused a sharp reduction in service quality for many customers
and, in some cases, higher prices, but the settling period has elapsed and the baby
bells are growing to find a natural balance in the market without calling down
Sherman's hammer again.
Microsoft, on the other hand, was never actually broken up even though it lost its
case. The case against it was centered on whether Microsoft was abusing what was
essentially a non-coercive monopoly. Microsoft has been challenged by many
companies, including Google, over its operating systems' continuing hostility to
competitors' software.
Just as U.S. Steel couldn't dominate the market indefinitely because of innovative
domestic and international competition, the same is true for Microsoft. A non-
coercive monopoly only exists as long as brand loyalty and consumer apathy keep
people from searching for a better alternative. Even now, the Microsoft monopoly
is looking chipped at the edges as rival operating systems are gaining ground and
rival software, particularly open source software, is threatening the bundle business
model upon which Microsoft was built. Because of this, the antitrust case seems
premature and/or redundant.
[8.0]Case Study 2: Standard Oil
18

19. The oil industry was prone to a natural monopoly because of the rarity of the
deposits. Rockefeller and his partners took advantage of both the rarity of oil and
the revenue produced from it to set up a monopoly without the help of the banks.
The business practices and questionable tactics that Rockefeller used to create
Standard Oil would make the enroll crowd blush, but the finished product was not
near as damaging to the economy or the environment as the industry was before
Rockefeller monopolized it.
Back when there were a lot of oil companies competing to make the most of their
find, companies would often pump waste products into rivers or straight out on the
ground rather than going to the cost of researching proper disposal. They also cut
costs by using shoddy pipelines that were prone to leakage. By the time Standard
Oil had cornered 90% of oil production and distribution in the United States, it had
learned how to make money off of even its industrial waste - Vaseline being but
one of the new products launched.
The benefits of having a monopoly like Standard Oil in the country was only
realized after it had built a nationwide infrastructure that no longer depended on
trains and their notoriously fluctuating costs, a leap that would help reduce costs
and the overall price of petroleum products after the company was dismantled. The
size of Standard Oil allowed it to undertake projects that disparate companies
could never agree on and, in that sense; it was as beneficial as state-regulated
utilities for developing the U.S. into an industrial nation.
Despite the eventual break of up of Standard Oil, the government realized that a
monopoly could build up a reliable infrastructure and deliver low-cost service to a
broader base of consumers than competing firms - a lesson that influenced its
decision to allow the AT&T monopoly to continue until 1982. The profits of
Standard Oil and the generous dividends also encouraged investors, and thereby
the market, to invest in monopolistic firms, providing them with the funds to grow
larger.
[9.0] Bibliography.
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