How Can Monopolies Affect Countries’ Economies?
The issue of monopolies in economics has been studied for over a hundred years. Economists’ interest in monopolies is based on the development of various forms of competition that cannot be impartially assessed since they are subject not only to economic factors but also to sociopolitical conditions. In fact, you can use this professional custom coursework help for obtaining a perfect paper on this topic.
Economists agree that fair competition is more beneficial for a country’s economy than a power of monopolies. However, large enterprises’ wanting to increase their production potential creates conditions for forming monopolistic trusts and cartels.
Controversial Nature of Monopolies
Being an economic phenomenon, monopolies provoke some contrasting opinions. On the one hand, monopolists can control supply and demand to strengthen its market position. Also, they cause income inequalities which results in the worsening of living standards. On the other hand, monopolies produce high-quality goods and use their potential for the development of knowledge-intensive industries.
Getting rid of monopolistic trusts is impossible since they are an integral part of any country’s economy. The dual nature of monopoly requires a country’s government to take measures mitigating the negative effect of large cartels. Therefore, countries with developed market economies have chosen y to limit the development of monopolistic trusts, seeking to maintain and develop fair competition. In fact, monopolies can have both positive and negative impact on the development of a country’s economy, and we’ll now study it in more detail.
Positive Effect of Monopolies on Countries’ Economies
- Since monopolies arise on the basis of production concentration, large trusts have an opportunity to benefit from it on a large scale. In the past, monopolists were able to flood markets with consumer goods and obtain increased profits not only due to higher prices but lower production costs as well. As a rule, working conditions at the enterprises belonging to monopolistic trusts were more favorable, and wages were higher than at non-monopolized companies. All this had not only economic but also social significance.
- Trusts possessed huge capital and, therefore, they contributed to the emergence of new industries, which became driving engines for national economies. Some good examples of it can be found in the automobile, aviation, and other industries that belonged to capital and knowledge-intensive manufactures and were not affordable for small and medium-sized businesses.
- The relatively steady position of trusts in a country’s economy also ensures greater stability for small and medium-sized companies related to them. Therefore, their employees are assured of stable employment and income. Monopolists aim to take over many small and medium-sized companies. At the same time, they contribute to their greater stability because they often become customers for many of them. Hundreds and even thousands of small and medium-sized enterprises often work for the same trust and provide it with various goods and services.
- Trusts and cartels have made a significant contribution to intra-company planning, management, and marketing, which became important factors in the development of the global economy. Also, they began to develop a system of better human relations at their enterprises. It had important socio-economic importance since it was aimed at ensuring fundamental changes in the relations between top managers and ordinary workers.
- The fact that large companies manufacture high-quality products enables them to gain a dominant position in a country’s market. Monopolization positively affects production efficiency as well. Only a large enterprise has sufficient means to conduct expensive scientific research successfully. Although small entrepreneurs made a significant contribution to technical discoveries of the 19th and 20th centuries, only monopolists had opportunities to implement innovations.
Negative Impact of Monopolies on Countries’ Economies
- From the very beginning, trusts started to stifle competitors by nullifying the benefits of competition associated with a commodity-based economy.
- The practice of monopolistic pricing was one of the reasons for the rise in average market prices. Often, trusts used to make cosmetic changes in the goods they d produced and sold them as new or better ones at higher prices.
- Since every big trust plays the role of a sole manufacturer and seller of a product, it seeks to influence demand by making it more predictable. However, it is not always favorable for consumers. By making extensive use of advertising, cartels came up with methods of manipulating consumers’ behavior, prompting them to buy goods which they didn’t really need.
- Trusts are able to impede scientific and technological progress since it’s their usual practice to raise prices, and not reduce expenses. In an attempt to solidify their market position, large businesses often purchase patents that allow other manufacturers to produce substitute products. And that enables them to compete with trusts and cartels on an equal basis. Patented inventions are often hidden from society and not used.
- Since any monopoly seeks to expand its sphere of influence. Trusts began to intervene in state-controlled activities, such as legislation, administration, and foreign policy. The goal is to strengthen their economic positions with the help of the state. Moreover, many cartels tried to make the state an instrument of their domination.
Thus, the state ceases to reflect the interests of the whole society. And turns into a kind of “management committee” which acts in the interests of monopolists. Such a transformation weakens a national economy and society as a whole.
State and Monopolies
The state should use economic, administrative, and legislative measures to limit the impact of monopolies. Based on anti-monopoly legislation. These measures should be aimed at de-monopolizing a country’s market and preventing big enterprises from achieving monopoly status. The negative impact of monopoly on the economy and society as a whole was revealed at the end of the 19th century. Back the, states, acting in the interests of their people, began to take measures against monopolies.
Adopted in 1890, the Sherman Antitrust Act aimed to prohibit monopolistic cooperation and association. However, the law was far from perfect in legal terms, and large trusts were able to circumvent it. Therefore, it was replaced with the Clayton Antitrust Act which entered into force in 1914. This piece of legislation was directed against the creation of monopoly trusts. And it continues to affect US business practices even today. It should be noted that state antitrust laws became fully functional only after the Second World War. It was made possible due to antitrust laws and attempts to counter monopolies.
At present, all developed countries have anti-monopoly legislation, and special state bodies. Such as the Federal Trade Commission in the USA, the Competition and Markets Authority in the UK, the Federal Cartel Office in Germany, etc.
Being monopolists provides particular enterprises with a number of advantages over other companies. It may lead to negative social and economic consequences for the whole society as well. An increase in the impact of monopolies on the national economy can lead to market distortions. That is due to the fact that trusts and cartels seek to make a profit not by optimizing production. And reducing costs but by raising the price of goods produced.
Current economic conditions require us to study the economic activities of monopolistic organizations in the context of global processes. There is now a tendency for tougher competition among transnational corporations. Which is why antitrust laws are directed not so much against large enterprises. But rather against their collusion and division of markets in their favor.
Controlling existing monopolies is one of the main factors ensuring the normal functioning of a country’s economy. As far as the monopoly of trusts is concerned, such measures should include control over prices, expenses, and profit distribution. The main task of anti-monopoly laws is to create barriers for large organizations to obtain unlimited power in the market. And create opportunities for healthy competition. And that, in turn, can lead to lower prices better quality of goods and services.