Monopoly report

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Monopoly report

  1. 1. A PRESENTATION REPORT (EFM) ON Monopoly SUBMITTED BY JAYMIN PATEL= (ROLL-23)JAiMIN UPADHYAy= (ROLL-25) MBA FIRST SEM SUBMITTED TOJ.K.PATEL INST.OF MANAGEMENT, WAGHODiYA, BARODA ACADEMIC YEAR-2011 INDEX 1
  2. 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. 3. [1.0]MONOPOLY[1.0.1]Meaning of MonopolyMonopoly is a market situation which where, there is only one seller of productwith barriers to entry of others. The product has no close substitutes. The crosselasticity of demand with every other product is very low. Monopolist can sell hiscommodity at any price he likes. He has the control over price. However amonopolist can certainly fix the price at which he sells his commodity, but hecannot at the same time determine the amount of commodity, that purchaser willbuy. In fact, if he charges a high price, the demand for commodity will be less, andif he charges a low price. The demand for his commodity will be more. The priceis under the full control of the monopolist but not the demand, demand isdetermined by purchaser.[1.0.2]Features of Monopoly1. One seller and large number of buyers:Monopoly is a form of imperfect market structure where there is only one sellerof a product. A monopoly firm may be owned by a person, a few numbers ofpartners or a joint stock company. The characteristic feature of single sellereliminates the distinction between the firm and the industry. A monopolist firm isitself the industry. Under monopoly there are large numbers of buyers althoughthe seller is one. No buyers reaction can influence the price.2. No close substitute:Under monopoly a single producer produces single commodities which have noclose substitute. As the commodity in question has no close substitute, themonopolist is at liberty to change a price according to his own whimsy. Monopolycannot exist when there is competition.A firm is said, to be monopolist only when it is the single producer and supplier ofthe product which have no close substitute. Under monopoly the cross elasticity 3
  4. 4. of demand is zero. Cross elasticity of demand shows a change in the demand for agood 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 producerscan enter the market of the same product. Since the monopolist has absolutecontrol over the production and sale of the commodity certain economic barriersare imposed on the entry of potential rivals.4. Nature of demand curve:In case of monopoly one firm constitutes the whole industry. The entire demandof the consumers for a product goes to the monopolist. Since the demand curveof the individual consumers lopes downward, the monopolist faces a downwardsloping demand curve.A monopolist can sell more of his output only at a lower price and can reduce thesale 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 slopesdownward mid MR curve lies below AR curve. Demand curve under monopoly laotherwise known as average revenue curve.5. Patents:Patents are a subclass of legal barriers to entry, but theyre important enough to begiven their own section. A patent gives the inventor of a product a monopoly inproducing and selling that product for a limited amount of time. Pfizer, inventorsof the drug Viagra, have a patent on the drug, thus Pfizer is the only company thatcan produce and sell Viagra until the patent runs out. Patents are tools thatgovernments use to promote innovation, as companies should be more willing tocreate new products if they know theyll have monopoly power over thoseproducts. 4
  5. 5. [2.0]Why Monopoly Arise?Monopolies have existed throughout much of human history. This is becausepowerful forces exist both for the creation and maintenance of monopolies6. Atthe root of these forces is the natural human desire for wealth and powertogether with the fact that monopolies can be immensely profitable and providetheir owners with tremendous financial, political and social power.Monopolistic power existed even in primitive societies because limited technicalknowledge, poor transportation and small, scattered populations left little roomfor the emergence of numerous, competitive suppliers for some goods andservices. In medieval Europe, guilds arose as transportation improved, economiesgrew and competition increased. Guilds were cartels formed by artisans andmerchants for the purpose of controlling output, setting prices and establishingrestrictions on new producers and sellers.When nation-states began to emerge in the late Renaissance, monopolies provedto be a useful device for their leaders to acquire the resources to maintain largearmies and extravagant life styles. Major European nations also grantedmonopoly powers to private trading companies in order to stimulate theexploration and exploitation of new lands in the Americas, Asia, Africa, etc.Monopolies can arise in some circumstances as the result of normal businesspractices that are characteristic of firms in a highly competitive industry. Or theycan arise as a consequence of what economists term anti-competitive practices,that is, behavior that is intended to destroy competition through means otherthan competing on the basis on price and quality (including the quality of servicesassociated with the product). More specifically, monopolies can arise in any of thefollowing, non-mutually exclusive, ways:(1) By developing or acquiring control over a unique product that is difficult orcostly for other companies to copy. This can occur as a result of a purchase,merger or research and development. An example is pharmaceuticals, which canbe extremely expensive and risky to develop (and which are also protected bypatents), thereby locking out all but a few large, well funded companies withample talent. Closely related to this is control over a unique input for a product,such as a unique natural resource. 5
  6. 6. (2) By having a lower production cost than competitors. This can result fromhaving a more efficient (i.e., more output per unit of input) production techniqueor from having access to a unique source of low cost inputs (e.g., a minecontaining exceptionally high grade ore). In some cases, a greater efficiency is theresult of economies of scale, which means that the production cost per unit ofproduct declines as the volume of output increases due to the ability to use someresource more intensively (e.g., a steel mill or railroad with lots of excesscapacity).This category includes natural monopolies. A natural monopoly exists for aproduct for which there are sufficient economies of scale such that the productcan 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 oftenwasteful (for consumers and the economy) to have more than one such supplierin 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 everyhouse).(3) By using various legal and/or illegal tactics, often referred to as predatorytactics, 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. 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 standardizedspecification for a product that allows its providers and users and their productsto interoperate without special arrangement. This reduces the overall costs ofconducting transactions by removing some of the costs of matching up productswith buyers. Lock-in is the practice of designing a product that cannotinteroperate with products made by other companies in order to make it difficultand/or costly for users to switch to competing systems. Lock-in is also used sothat replacement parts or add-on enhancements must be purchased from thesame manufacturer. Examples would include a computer operating system or aportable music storage/replay device that is controlled by a single company.(5) By receiving a government grant of monopoly status, i.e., becominga government-granted monopoly. Today this is usually accomplished through theacquisition of a license, patent, copyright, trademark or franchise. Common 7
  8. 8. examples include a franchise for cable television for a certain city or region, atrademark for a popular brand, copyrights on certain cartoon characters or apatent 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 lobbyingand advertising, are important tools for monopolists for convincing politicians toignore, approve or even bless anti-competitive acquisitions, mergers, etc. Amongthe arguments typically made by monopolists are that such acquisition or mergeris 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. 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 MonopolyMonopolies can be classified in various ways, including according to the degree ofmonopoly power, the cause of the monopoly, the structure of the monopoly andwhether the monopoly is with regard to selling or buying.Frequently, instead of a single company, a monopoly consists of a group ofcompanies that collude to control prices and quantities. In particular,an oligopoly is a situation in which sales of a product are dominated by a smallnumber of relatively large sellers who are able to collectively exert control over itssupply and prices.A cartel is a type of oligopoly in which a centralized institution exists for thepurpose of coordinating the actions of several independent suppliers of aproduct. Probably the best known example today is the Organization ofPetroleum Exporting Countries (OPEC). A problem with cartels and otheroligopolies, at least from the participants point of view, is the fact that they areinherently unstable. This is because there is a strong incentive for each individualsupplier to cheat and supply more than its allotted quota; this instability tends tobe greater the larger the number of participants.In the latter half of the nineteenth century trusts became a popular way to formmonopolies in the U.S. A trust was an arrangement by which stockholders inseveral companies transferred their shares to a single set of trustees. In exchange, 9
  10. 10. the stockholders received a certificate entitling them to a specified share of theconsolidated earnings of the jointly managed companies. The trusts came todominate a number of major industries. The largest and most infamous of thesewas Standard Oil, but trusts were also formed in numerous other industriesincluding railroads, coal, steel, sugar, tobacco and meatpacking.Although monopoly is most often thought of as referring to sellers, it can alsoapply to buyers. A monophony is the opposite of a conventional monopoly in thesense that there is only a single buyer (or only one dominant buyer) for a productfor which there are multiple sellers. Some companies are both monopolies andmonopolies. By being also a monopolist, a monopoly can increase its profits evenfurther (i.e., as compared with being a competitive purchaser) by putting pressureon 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 casesbecause, by definition, a monopolist has one or more unique products, and thus itis possible that it would also need some unique inputs to produce those uniqueproducts. Even if a monopolist does not require unique inputs, however, it canstill wield considerable monophony power if it is a large company.[4.0]Why Monopolies Can Be HarmfulLarge monopolies have considerable potential to damage both economies anddemocratic governments (although they can be very beneficial for other types ofgovernments). Unfortunately, the full extent of the damage is usually not asobvious, at least to the general public, as are the seemingly beneficial effects. Andmonopolists often go to extreme lengths to disguise or hide such harmful effects.Among the ways in which unregulated monopolies can harm an economy are bycausing:(1) Substantially higher prices and lower levels of output than would exist if theproduct were produced by competitive companies. 10
  11. 11. (2) A lower level of quality than would otherwise exist. This includes not only thequality of the goods and services themselves, but also the quality of the servicesassociated 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 ofproduction. Innovation is not as necessary for a monopolist as it is for a highlycompetitive firm, and, in fact, it can be a bad business strategy. Research anddevelopment by monopolists is often largely focused on ways of suppressing new,potentially competitive technologies (and includes such techniques as stockpilingpatents) rather than true innovation 10. This can be a serious disadvantage,because economists have long recognized that innovation is a key factor (andpossibly the single most important factor) in the growth of an economy as awhole11.The adverse effects of monopolies can be much more noticeable on an individuallevel than in the aggregate. These effects include the destruction of businessesthat 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) andprices for products so high as to cause hardship or be unaffordable for somepeople.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 monopolypower that is harmful." This statement is an excessive simplification, and it can beindicative of a lack of understanding of the full extent of harm that can be causedby monopolies.The abuse of monopoly power clearly can be harmful to an economy. Theterm abuse in this context refers to such tactics as predatory pricing, colludingwith suppliers and the leveraging of a monopoly in one product to gain amonopoly for another product. But what is often overlooked, even by legislationwhose supposed purpose is to restrain or regulate monopolies, is the fact thatmonopolies can be harmful even if they do not engage in such practices. 11
  12. 12. If a monopolist engages in behavior that produces results similar to that by firmsin an industry that is characterized by intensive competition (i.e., charges pricesclose to cost and does not engage in price discrimination), then there might notbe a problem. Unfortunately, however, this is rare even for aseemingly benevolent monopolist. The reason is that the very strong incentives tomaximize profits that exist for virtually any business, whether pure monopolist,perfect competitor or somewhere in between, produce very different results for amonopolist than they would for a firm in a highly competitive industry. Andmonopolists (as is the case with competitive firms) usually do not rankbenevolence as a top corporate priority.Thus, the management and employees in a monopoly might not at all be awarethat they are harming the economy, especially if their behavior is similar to thatby a non-monopoly. In fact, they may even genuinely believe that they arebenefiting the economy because of their conviction that they are more efficientand productive than a number of firms competing with each other would be.Another reason that the positive effects of even a benevolent monopolist wouldnot be as great as for a competitive company is that innovations that improvequality and reduce production costs are often the result of desperation. (This issomething 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 theyoften are innovators to some extent (typically mainly in their earlier years), theyusually just do not have that extra motivation to produce truly breakthroughinnovations that smaller companies desperate to gain market share (or to justsurvive) have.[5.0]Specious Arguments for Tolerating MonopoliesThe argument is often heard that "the government should leave monopoliesalone, because their success is a result of market competition." This argument isvery misleading for several reasons. 12
  13. 13. One is that, in many cases, monopolies that have arisen largely as a result ofillegitimate or illegal tactics (rather than through competition based on lowerprices and superior quality) and they have made great efforts to hide that factfrom the general public and politicians.A second reason is that, even if a monopoly arises by fully legitimate means, thereare strong temptations for it to engage (even unknowingly) in practices that arebad for the economy as a whole (e.g., higher prices, lower output and lessinnovation than in a highly competitive situation), although such behavior and itsconsequences are usually not readily apparent to laymen or to political decisionmakers.It has also been argued that governments need not intervene becausemonopolies always tend to break down in the long run anyway due to marketforces. 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 thecreation and abusive behavior of new monopolies.[6.0]Optimal Public PolicyPublic policy with regard to monopolies should ideally be based on what is mostefficient for the economy and society as a whole. For natural monopolies, it isgenerally most efficient to maintain the monopoly, but subject it to governmentregulation with regard to prices, quality of service, etc.In the case of monopolies that are not natural monopolies (i.e., products forwhich there is no great advantage in terms of economic efficiency to having amonopoly), public policy decisions should depend in large part on the behavior ofthe monopolist. If the monopolist is regarded as charging reasonable prices,providing high quality products, being innovative and not engaging in abusivepractices, then there might be good reason to leave it alone. One reason to leavea monopoly alone in such circumstances is to avoid what can be the verysubstantial costs involved in regulating it or breaking it up. 13
  14. 14. But if it is determined that a monopolist is charging prices substantially higherthan, providing quality lower than, or being less innovative than would occurunder competitive conditions or engaging in abusive practices, then there is goodcause to take aggressive action.The ways in which governments can intervene to reduce the adverse effects ofmonopolies can be classified into three broad categories:(1) strengthening of existing competition or promoting the emergence of newcompetition by such means as encouraging innovation, providing governmentcontracts to competitors and providing favorable financing to competitors,(2) Regulating the monopoly to limit prices, eliminate price discrimination, setquality standards, restrict political activities, etc.(3) Breaking up the monopoly.When monopolies are permitted to exist, there are several types of policies thatshould 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, andparticularly those that abuse their monopoly powers, can be harmful to aneconomy, 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 theabusive practices of monopolists. For example, in 1624 the English Parliamentpassed the Statute of Monopolies, which greatly restricted the kings right to 14
  15. 15. create private monopolies in the domestic economy. However, this legislation didnot apply to the monopoly powers granted to companies formed for overseasexploration and colonization.The U.S. first attempted to curb monopolies at a national level was through theenactment of the Sherman Antitrust Act in 1890 in response to the widespreadrevulsion to the highly abusive practices of Standard Oil. Despite the subsequentpassage of a variety of additional antitrust (i.e., anti-monopoly) measures, theSherman act remains in many respects the most important piece of legislation inthe U.S. with regard to monopolies.Unfortunately, the degree of enforcement of antitrust legislation has variedwildly, even within individual countries (or with regard to individual companies),and it has frequently been based more on political considerations than oneconomic merit. This is, of course, due to the great difficulty for governments totake effective action against even the most abusive of monopolies because of theexceptional political influence that monopolists tend to acquire and the fact thatthe adverse effects of monopolies are often less obvious to the public and topoliticians 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. 16. means that the curve always slopes downward to the right, although somesections may be horizontal or vertical. 4. This is what economists refer to as the price elasticity of demand. Aproduct which buyers urgently want and for which they are relativelyinsensitive to its price, such as drinking water or table salt, is said to have alow elasticity of demand. A product for which buyers are relatively sensitiveto its price has a high elasticity of demand. Monopolists will be aware (evenif they are not familiar with this terminology) that different types or groupsof buyers may have different elasticity of demand, and they will take suchdifferences into consideration in their profit maximizing calculations.5. Airlines are not generally considered to be monopolies because there isusually a choice of airlines as well as other modes of transportation fromwhich to choose. However, individual airlines often have substantialmonopoly power on certain routes and/or for certain times because theymight be the only choice for high speed travel or shipping for a particularroute or for that route at a certain time.6. The argument could be made that this implies that monopolies arethe natural state of an economy and thus government intervention shouldnot be used if one believes in a free market economy. However, kings orother dictatorships have also existed throughout most of history, and thusit could likewise be argued that dictatorship is the natural form ofgovernment and its citizens should not strive to break it up in order toattain or restore democracy.7. Article I, Section 8 of the U.S. Constitution states: The Congress shallhave Power . . . To promote the Progress of Science and usefulArts, by securing for limited Times to Authors and Inventors theexclusive Right to their respective Writings and Discoveries.8. For example, the fair use doctrine allows people to make copies ofcopyrighted materials in some situations, trademarks can become invalid ifthey are not actively protected and patents can be ignored by thegovernment if it wants to use an invention for its own purposes. 16
  17. 17. 9. Large monopolies can be an efficient means of both raising revenue andconsolidating power for governments whose primary goals are other thanthe prosperity of their citizenry (e.g., the accumulation of wealth andpower for their leaders). As economic competition and political competitiontend to go hand in hand, restricting economic competition through thetolerance for or encouragement of monopolies can be an effective way ofrestricting political competition (and thus restricting political freedom). Infact, monopolies have commonly been used throughout history for thesepurposes.10. There have been a few major exceptions to this. Most notable was BellLabs, the research and development arm of AT&T. AT&T was one of thelargest and most pervasive monopolies in recent U.S. history, although ahighly regulated and generally benevolent one. Bell Labs was perhaps themost prolific source of innovation that has ever existed, and it wasresponsible for such revolutionary inventions as the transistor, the single-chip 32-bit microprocessor, the UNIX computer operating system andthe C and C++ programming languages. 11. For a more detailed look at how monopolies affect technologicaladvance, see Why and How Monopolies ImpedeTechnological Advance, The Linux Information Project, andJune 12, 2006.12. As John Maynard Keynes, one of the most influential economists of thetwentieth century stated so eloquently in what his most famous quote ispossibly: "In the long run we are all dead." (No wonder economics is oftenreferred to as the dismal science!) Keynes was referring to the GreatDepression of the 1930s and to those economists who advocated lettingthe market mechanism eventually restore the economy to prosperityinstead of calling for immediate government intervention. 17
  18. 18. [7.0]Case Study 1: AT&T and MicrosoftAT&T was a government-supported monopoly - a public utility - that would haveto be considered a coercive monopoly. Like Standard Oil, the AT&T monopolymade the industry more efficient and wasnt guilty of fixing prices, but rather thepotential to fix prices. The breakup of AT&T by Reagan in the 1980s gave birth tothe "baby bells". Since that time, many of the baby bells have begun to merge andincrease in size in order to provide better service to a wider area. Very likely, thebreakup of AT&T caused a sharp reduction in service quality for many customersand, in some cases, higher prices, but the settling period has elapsed and the babybells are growing to find a natural balance in the market without calling downShermans hammer again.Microsoft, on the other hand, was never actually broken up even though it lost itscase. The case against it was centered on whether Microsoft was abusing what wasessentially a non-coercive monopoly. Microsoft has been challenged by manycompanies, including Google, over its operating systems continuing hostility tocompetitors software.Just as U.S. Steel couldnt dominate the market indefinitely because of innovativedomestic and international competition, the same is true for Microsoft. A non-coercive monopoly only exists as long as brand loyalty and consumer apathy keeppeople from searching for a better alternative. Even now, the Microsoft monopolyis looking chipped at the edges as rival operating systems are gaining ground andrival software, particularly open source software, is threatening the bundle businessmodel upon which Microsoft was built. Because of this, the antitrust case seemspremature and/or redundant.[8.0]Case Study 2: Standard Oil 18
  19. 19. The oil industry was prone to a natural monopoly because of the rarity of thedeposits. Rockefeller and his partners took advantage of both the rarity of oil andthe 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 createStandard Oil would make the enroll crowd blush, but the finished product was notnear as damaging to the economy or the environment as the industry was beforeRockefeller monopolized it.Back when there were a lot of oil companies competing to make the most of theirfind, companies would often pump waste products into rivers or straight out on theground rather than going to the cost of researching proper disposal. They also cutcosts by using shoddy pipelines that were prone to leakage. By the time StandardOil had cornered 90% of oil production and distribution in the United States, it hadlearned how to make money off of even its industrial waste - Vaseline being butone of the new products launched.The benefits of having a monopoly like Standard Oil in the country was onlyrealized after it had built a nationwide infrastructure that no longer depended ontrains and their notoriously fluctuating costs, a leap that would help reduce costsand the overall price of petroleum products after the company was dismantled. Thesize of Standard Oil allowed it to undertake projects that disparate companiescould never agree on and, in that sense; it was as beneficial as state-regulatedutilities for developing the U.S. into an industrial nation.Despite the eventual break of up of Standard Oil, the government realized that amonopoly could build up a reliable infrastructure and deliver low-cost service to abroader base of consumers than competing firms - a lesson that influenced itsdecision to allow the AT&T monopoly to continue until 1982. The profits ofStandard Oil and the generous dividends also encouraged investors, and therebythe market, to invest in monopolistic firms, providing them with the funds to growlarger.[9.0] Bibliography. 19
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