Economics Mr. Joshi

The Big Question: Are Monopolies Good for Society?

Questions for this PowerPoint (Please copy)On a piece of paper, write your name, date, period, and “Monopolies”1- What is a monopoly?

2- Why might they be bad for consumers?

3- Why might they be good for consumers?

4- What are the five kinds of monopolies?

5- How does each work? What is one example of each?

6- How should governments decide whether or not to leave a monopoly alone?

7- Number your paper 1 to 10 leaving two lines in between.

8-What did you learn about monopolies that you didn’t know before?

Monopolies

• When one supplier, company, person, or group becomes the only provider of a good or service.

• This can be very bad for the consumer – increasing prices and reducing choices.

• In some cases though, they seem unavoidable, and perhaps, even useful to society!

Kinds of Monopolies

• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies

Geographic Monopolies

• These monopolies are local monopolies, dominating a particular product or, in some cases, the entire local market.

• Examples include a small town general store, a company town (mining company), a hospital (monopsony), one railroad (historical) one area hardware store, etc.

• How can these be beaten? Lower transportation costs, higher incomes, and the Internet!

What kind of monopoly is cartoonist Thomas Nast depicting here?

Predatory (coercive) Monopolies• These monopolies exist the old-fashioned way – by

squeezing out or combining with competitors until there is really only one company left. New entrants are bought off or pressured into leaving.

• Examples include Standard Oil, DeBeers, Microsoft, Monsanto (own 70% plus of the seed market), ALCOA

• Debeers Ad: http://www.bing.com/videos/search?q=debeers+ad&view=detail&mid=BA57CF862A33DE9FD74ABA57CF862A33DE9FD74A&first=0&FORM=LKVR14&adlt=strict

R.I.P. Microsoft Competitors

In the case of Microsoft…a list of predatory tricks:

1-Vaporware – the practice of announcing that Microsoft will add a certain feature which a rival was already making. The rival quickly got out even if Microsoft never actually went ahead and made the product.

2-Adding “features” to Windows - Explorer completely made Netscape Navigator obsolete.

3-In-House “bump” - Making Windows work better with its own software than with competitors – Excel, PowerPoint (hey, this product!), Word, and Outlook get this boost.

3-Buying out competitors• http://www.businessinsider.com/microsofts-15-biggest-acquisitions-an

d-what-happened-to-them-2011-3?op=1

Technical Monopolies• Network Monopolies – Facebook (nice try Google +), GroupOn,

LinkedIn, Microsoft Windows – “There can be only one”

• Superior Technological Features – Google, Facebook, iTunes, Apple Iie, iPod, Prius, Twitter, Norton Utilities, Netflix, Dish TV, Ebay, Amazon, StubHub, Xerox (old), Kleenex (old), Jell-o (old).

• Superior Service/Value - McDonald’s, Whole Foods, Starbucks

• Patent/Copyright Monopoly – Temporary government protection against competition – patent (17 years) or copyright (author’s life plus 50 years)

• Beat these with innovation, branding, first-mover advantage

How many of the top 15 prescribed drugs can you guess for the U.S. in 2011?

http://www.theatlantic.com/technology/archive/2011/04/chart-of-the-day-the-top-15-prescription-drugs-in-america/237538/

Scale Monopolies

• They use their sheer size and number to overwhelm competitors with their low prices and selection.

• Examples include very large chains and “big-box” stores such as Wal-mart, Home Depot (or should I say despot), Best Buy, Staples, Sports Authority, etc.

Government Monopolies• Natural Monopoly – When there can physically be only

one company to provide the service – local utilities, phone company, and cable TV. In history, Western Union was the company that put up telegraph wires all over the U.S.

• Government Services – DMV, First Class Mail, Roads, Airports, Bridges, Tunnels, water, sewers, police, courts, K-12 schools, and many other services.

• Special Interest Protection – Major League Baseball

How to beat these monopolies? Lobbying government agencies and officials.

Enemies of Monopolists Everywhere…• The Internet – reduces cost to enter market, increases

market reach, think Ebay, Amazon, etc.

• Innovators – breakthroughs in technology threaten a product – Nylon for silk; synthetic diamonds threaten DeBeers

• Automation – computer software replaces the monopolists’ hold – ex. Quicken for H&R Block.

• Near Competitors Extend Reach – Anthracite coal boilers compete with oil heat.

Innovation: The monopolist’s worst nightmare

Investor David Rose give advice to people who would pitch and idea to venture capitalists (VCs)

http://www.ted.com/talks/lang/en/david_s_rose_on_pitching_to_vcs.html

Why would VCs invest in an idea?Why do most of these investments fail?Would you ever try to get a VC to fund your idea?

How should the government regulate monopolies?

• Which are the “best” monopolies?• Which are the “worst” monopolies?• How might the government best regulate

these “bad” monopolies?– Break them up– Fine them if they behave poorly– Regulate their operations– Take them over

What kind of monopoly might this be?

1. There is only one Ethiopian restaurant on the Columbia University area in Manhattan:

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies

– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?2. In Anytown, USA, there are no private schools in a 15 mile

radius. Do the public schools have a monopoly there?

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies

– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?3. Epson Inc. develops a “smartboard” technology that allows

any whiteboard to become a touchscreen with the aid of a special marker. They patent this system.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies

– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?4. The local Rave movie theater does not allow people to

bring in outside food or drink.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?5. There is only one teacher who teaches Economics at

MHS, Mr. Joshi.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?6. Wikipedia has 90% of the market share for a free online

encyclopedia service.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?7. Poland Springs begins a new line of “Springtime” colas

that use Poland Spring water and various flavors.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies

– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?8. There is only one fire-fighting service in a town. No

private fire-fighting companies exist.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?9. The new iPad from Apple gives them 80% of the tablet-

PCs that are bought this year.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest

What kind of monopoly might this be?10. You end up with all the properties in the game

Monopoly.

• Not a Monopoly• Geographic Monopolies• Predatory Monopolies• Technical Monopolies• Scale Monopolies• Government Monopolies– Natural Monopoly– Government Services– Special Interest