Discuss The Argument On For And Against Monopoly

1742 words - 7 pages

The changes surrounding contemporary businesses have been noted to have increased in their frequency, direction and overall strength that have their long term implications on strategic management and investment within these industries (Barreto, 2010). The free market hypothesis has argued that optimum allocation of resources within an economy can be achieved when there is no interference from external third parties to develop effective and efficient markets (Bremmer, 2010). In order to achieve this high degree of market effectiveness and efficiency, governments around the world pursue a competition development strategy across the industries so that value maximisation can be achieved for ...view middle of the document...

These three factors have led to the overarching belief that monopolistic market dynamics only favours businesses, which have the interest of shareholders and aim of maximise wealth creation. This is the reason that there is plethora of economic literature discrediting monopolistic market dynamics, arguing that in the long term the overall value achieved for consumers and the economy is lower than in free competitive market dynamics (Gómez-Ibáñez, 2003; Wendong, 2004).

The disadvantages that have been significantly documents are noted to stem from the fact that monopolies help firms maximise their profits. It is argued by Mankiw (2008) that owing to the evident market dominance, monopoly corporations are always “price makers” rather than “price takers”. This can be exemplified through the monopolistic market dynamics developed due to the rise of personal computers using Microsoft’s Windows as the operating system. Since the inception of the operating system, it achieved a 90% market dominance, which remains the most popular operating system across the globe to this date (Fisher, 2000). The monopoly of the company has led to soaring prices of the operating system across the globe, which can be seen from sharp rise in recent process in China as the overall purchasing power has increased in the country (Leblanc, 2013). It can therefore be argued that monopoly and its link with profit maximisation leads to negative influence on the consumers and economic outcomes.

The purist school of thought within contemporary economics has highlighted that if monopolistic firms do not pursue their profit maximisation objectives then there are number of advantages that can be attributed to them (Foster, 2014). It is argued that monopoly industries develop organisations that have extensive operations and customer base, which helps them in achieving efficient and effective economies of scale and scope. These economies of scale and scope can reduce the costs of provision of products and services to customers significantly in comparison with smaller firms, therefore adding value to the overall economy (Erikson, 2014). This can be exemplified with the help of public service firms generally controlled by governments or governmental institutions.

The NHS in the UK is a prime example of using monopoly for the provision of free healthcare covering the entire country by achieving cost efficiencies through economies of scale and scope in the country. According to Le (2006), the NHS comprises for 98% buying of pharmaceutical, healthcare and diagnostics purchasing within the UK, providing the institution with significant economies of scale and scope. The institution uses bargaining power with major pharmaceutical firms to gain price caps on innovative treatments, while have banned certain treatments due to their lack of overall value for the service users. Drawing upon Lawlor & Politeia (2001), the efficiencies within the NHS is adopted through a mix of three decision...

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