The reform journalists in the early 1900s have made “monopoly” into a bad word. Every worker and consumer in America scorn the word as if it was cheater or exploiter. The word conjures images of the strike-crushers and robber-barons who made millions in oil and steel. As a result, no company today wants to be known as a monopoly, mainly because of the regulations. Really, a monopoly is a business or organization which controls the output of an entire market. In this article, we will explore if there are useful monopolies that deserve their immense power.
The History of Allowing Monopolies
Between the 1900s and 1990s, monopolies were vigorously pursued by the federal government under the Sherman Anti-Trust Act. This was because most government officials held the legitimate view that monopolies hurt consumers and workers. The ultimate victory of the anti-trust action was the forced break of Bell Systems.
But recently economists have started to believe in a necessary type of monopoly. A natural monopoly occurs when a certain service or good can only be produced on the large scale profitably and so a single organization is needed to occupy that role. A good example is the US postal service, which is run by the Federal Government. If several companies attempted to center their businesses on delivering mail at the low price which the US Government charges, they would all surely bankrupt themselves, no doubt due to the largeness of the organization needed.
The idea of not breaking apart these helpful monopolies was first popularized by Robert Bork, a conservative judge in the late 1900s, and since then his ideas have become more widespread. While these monopolies suffocate free trade, breaking them apart hurts consumers, and that defeats the whole reason we love competition amongst companies. Cleary then breaking apart these monopolies is a wrong step, but are there actually monopolies that benefit the consumer.
Monopolies Today
I think there is one modern type of monopoly which is not only acceptable but good for the economy: technology. Technology is a perfect example of a necessary and helpful monopoly. A tech company that serves everyone can only exist if it owns a large market share. For example, if Google didn’t hold all available information in its servers or wasn’t able to deliver this information in a moment’s notice, no one would use it. And, if they didn’t have such a wide base of users, they wouldn’t be able to maintain the servers to hold and deliver the information.
Additionally, some tech companies are rightfully monopolies because of the network effect. A network effect is a condition of having an increased value with more users. A classic example of the network effect is Facebook. If my friends and family weren’t on Facebook, I would not use it as I would not be able to interact with people I care about. Users can’t be social without other users to connect with. So for social media sites, having a monopoly is a necessity and benefits the consumers.
Finally, some tech companies most pour huge amounts of resources into research and development. New hardware and algorithms must be created to deal with the vast and increasing amount of data. These improvements are only possible when financed by huge tech giants. Without these improvements, consumers would surely face longer waiting times and slower access.
Final Thoughts
It is evident that some recent developments may validate Robert Bork’s beliefs on monopolies. But also within the past couple of years, Facebook has been caught up in a scandal wherein they helped a foreign country possibly influence an American election, and many other tech monopolies regularly sell consumer’s information. These monopolies can still violate the trust of the consumer. Their usefulness does not warrant an absolute absence of regulation. A monopoly, by definition, has vastly more market power than consumers; They decide what deal the consumer takes because the consumer has no other options. And as a result, consumers can be cheated and exploited, like the consumers who had to deal with the monopolies of old. Governments must still assure a fair deal between the consumer and businesses. But maybe, they don’t need to take the saw out.
About the author
I write about economics, technology, and markets. I am a freshman at the University of Washington.
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