1. Monopolypower and innovation
--------------- TheIBM case
So far we see that an industry can gain huge profitthrough monopoly to chargea
markup pricing to the consumer. Monopolization reduce on other word destroy
the competition of the market. There are many ways to be a monopoly. Such as
predatory pricing, tying contracts and agreements, price discrimination and so on.
I am not interested to explain thosethings becauseyou can find them in any
paper on antitrust policy.
I am trying to answer a simple question that is; Is monopoly power really good for
an industry to earn hugeprofit in the long run?
Here, I only think about the welfareof monopoly industry not the consumer
because when the firmwant be a monopoly then they don’tthink about their
consumer. Their only concern is to makehuge profit. They only think about their
welfare not the consumer’s. Weall know that monopoly is inefficient and charge
a very high price, if they think about the welfare of their consumer they will not
make them monopoly.
If today I provethat monopoly power is not good for an industry to earn huge
profit in the long run, I think, monopoly industries will think about their futurein
a new way fromtoday.
To provethis I use two new concepts of economics made by myself.
1. Innovation supply curve: Innovation supply curveis a curvewhich shows the
supply of innovative ideas for which an industry increases its sales. For
simplification, here we assumethat innovation is the only factor which
determines sales. If innovation increases sales is also increase. Thus the industry
gains more profit.
2. A measure of monopoly power: Degreeof competition is a measureof
monopoly power. Usually comes frommarketshare. The relationship is like this

2. Fromthe data on sales as innovation and monopoly power if I draw an innovation
supply curveof IBM, it will like this:
Here, wecan see the market shareas monopoly power in the vertical axis and
sales as amount of innovation supplied in the horizontalaxis. At initial point A the
amount of innovation supplied (Sales) is 1 and monopoly power (Marketshare) is
A*.
To capturing the market or to reducethe competition or to be a monopoly IBM
had used many devices to prevent others for competing, tie in pricing, predatory
pricing and also obviously invented new productas we see fromgraph the supply
of innovation moves from 1 to 2. And for these reasons IBMbecame monopoly as
we see at point B and C.
But after they become monopoly they chargehigh price and their supply of
innovation was lowering. The depends on their monopoly power at point D, E and
F. The productivity of their worker was worsened. As a result, their innovation
supplied decline at point 4, 5, 6. At a time (not included in this graph) when IBM
produced non-innovativeproductthen their marketshare decreases and other
innovative computer producing industry like Macintosh or apple started to
capture the market. Thus IBMfaces huge profit loss.
Market share↑ Degree of competition ↓ Monopoly power ↑

3. We can see that innovation supply curveis backward bending. Itis because there
is almost a negative relationship between Monopoly power and innovation
supplied. And when the supply of innovation reaches near the stationary point
then monopoly have to lose most of their share. This is true for all types of
monopolies.
So, I proved that monopoly power is not good for an industry to earn huge profit
in the long run, I think, monopoly industries will think abouttheir futurein a new
way fromtoday.
…………………………………………………..Tanvir Sadik Akash