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Monopoly

From lawbrain.com

An economic advantage held by one or more persons or companies deriving from the exclusive power to carry on a particular business or trade or to manufacture and sell a particular item, thereby suppressing competition and allowing such persons or companies to raise the price of a product or service substantially above the price that would be established by a free market.

In a monopoly, one or more persons or companies totally dominates an economic market. Monopolies may exist in a particular industry if a company controls a major natural resource, produces (even at a reasonable price) all of the output of a product or service because of technological superiority (called a natural monopoly), holds a patent on a product or process of production, or is otherwise granted government permission to be the sole producer of a product or service in a given area.

U.S. law generally views monopolies as harmful because they obstruct the channels of free competition that determine the price and quality of products and services that are offered to the public. The owners of a monopoly have the power, as a group, to set prices, to exclude competitors, and to control the market in the relevant geographic area. U.S. Antitrust laws prohibit monopolies and any other practices that unduly restrain competitive trade. These laws are based on the belief that equality of opportunity in the marketplace and the free interactions of competitive forces result in the best allocation of the economic resources of the nation. Moreover, it is assumed that competition enhances material progress in production and technology while preserving democratic, political, and social institutions.

Contents

History

Economic monopolies have existed throughout much of human history. In England, a monopoly originally was an exclusive right that was expressly granted by the king or Parliament to one person or class of persons to provide some service or goods. The holders of such rights, usually the English guilds or inventors, dominated the market. By the early seventeenth century, the English courts began to void monopolies as interfering with free of trade. In 1623, Parliament enacted the Statute of Monopolies, which prohibited all but specifically excepted monopolies. With the Industrial Revolution of the early nineteenth century, economic production and markets exploded. The growth of capitalism and its emphasis on the free play of competition reinforced the idea that monopolies were unlawful.

In the United States, during most of the nineteenth century, monopolies were prosecuted under common law and by statute as market-interference offenses in attempts to stop dealers from raising prices through techniques such as buying up all available supplies of a material, which is called "cornering the market." Courts also refused to enforce contracts with harsh provisions that were clearly unreasonable restraints of trade. These measures were largely ineffective.

Government Regulation

Congress intervened after abuses became widespread. In 1887, Congress, pursuant to its constitutional power to regulate interstate commerce, passed the Interstate Commerce Act (49 U.S.C.A. § 1 et seq.) in response to the monopolistic practices of railroad companies. Although competition among railroad companies for long-haul routes was great, it was minimal for short-haul runs. Railroad companies discriminated in the prices they charged to passengers and shippers in different localities by providing rebates to large shippers or buyers, in order to retain their long-haul business. These practices were especially harmful to farmers because they lacked the volume of traffic necessary to obtain more favorable rates. Although states attempted to regulate the railroads, they were powerless to act where interstate commerce was involved. The Interstate Commerce Act was intended to regulate shipping rates. It mandated that charges be set fairly, and it outlawed unreasonable discrimination among customers through the use of rebates or other preferential devices.

Congress soon moved ahead on another front, enacting the sherman anti-trust act of 1890 (15 U.S.C.A. §§ 31 et seq.). A trust was an arrangement by which stockholders in several companies transferred their shares to a set of trustees in exchange for a certificate that entitled them to a specified share of the consolidated earnings of the jointly managed companies. The trusts came to dominate a number of major industries, destroying their competitors. The Sherman Act prohibited such trusts and their anticompetitive practices. From the 1890s through 1920, the federal government used the act to break up these trusts.

The Sherman Act provides for criminal prosecution by the federal government against corporations and individuals who restrain trade, but criminal sanctions are rarely sought. The act also provides for civil remedies for private persons who start an action under it for injuries caused by monopolistic acts. The award of treble damages (the tripling of the amount of damages awarded) is authorized under the act in order to promote the interest of private persons in safeguarding a free and competitive society and to deter violators and others from future illegal acts.

The Clayton Anti-Trust Act of 1914 (15 U.S.C.A. §§ 12 et seq.) was passed as an amendment to the Sherman Act. The Clayton Act specifically defined which monopolistic acts were illegal but not criminal. The act proscribed price discrimination (the sale of the same product at different prices to similarly situated buyers), exclusive-dealing contracts (sales on condition that the buyer stop dealing with the seller's competitors), corporate mergers, and interlocking directorates (the same people serving on the boards of directors of competing companies). Such practices were illegal only if, as a result, they materially reduced competition or tended to create a monopoly in trade.

The Federal Trade Commission Act of 1914 (15 U.S.C.A. §§ 41 et seq.) established the Federal Trade Commission, the regulatory body that promotes free and fair competitive trade in interstate commerce through the prohibition of price-fixing arrangements, false advertising, boycotts, illegal combinations of competitors, and other methods of unfair competition.

Congress passed the robinson-patman act of 1936 (15 U.S.C.A. §§ 13 et seq.) to amend the Clayton Act. The act makes it unlawful for any seller engaged in commerce to directly or indirectly discriminate in the sale price charged on commodities of comparable grade and quality where the effect might injure, destroy, or prevent competition unless the seller discriminated in order to dispose of perishable or obsolete goods or to meet the equally low price of a competitor.

Exemptions

Despite these legal prohibitions, not all industries and activities are subject to them. Labor unions monopolize the labor force and take concerted action to improve the wages, hours, and working conditions of their members. The Clayton Act and the norris-laguardia act of 1932 (29 U.S.C.A. §§ 101 et seq.) recognized that unions would be powerless without this monopolistic behavior and therefore made unions immune from antitrust laws.

A government-awarded monopoly, such as the right to provide electricity or natural gas to a region of the country, is exempt from antitrust laws. Government agencies regulate these industries and set reasonable rates that the company may charge.

Sometimes an industry is a natural monopoly. This type of monopoly is created as a result of circumstances over which the monopolist has no power. A natural monopoly may exist where a market for a particular product or service is so limited that its profitable production is impossible except when done by a single plant that is large enough to supply the entire demand. Natural monopolies are beyond the reach of antitrust laws.

Special-interest industries, such as agricultural and fishery marketing associations, banking and insurance industries, and export trade associations, are also immune from antitrust laws. Major league baseball has been exempted from antitrust laws as well.

The phenomenal popularity of the personal computer (PC) in the 1980s and 1990s catapulted Microsoft Corporation past manufacturing corporations as a preeminent business organization in the United States and the world. With the explosion of interest in the Internet in the mid-1990s, Microsoft moved aggressively to market its Internet Explorer (IE) web browser and to crush its competitor, Netscape. Having already secured a monopoly with its Windows Operating System, Microsoft seemed poised to dominate Internet software. However, in 1998, 19 state attorneys general joined the U.S. Justice department in filing an antitrust lawsuit against Microsoft. The suit alleged that the software company forced computer manufacturers (known as original equipment manufacturers or OEMs) to license and distribute Microsoft's IE in exchange for the right to pre-install Microsoft's Windows 95 operating system on new PCs. Microsoft contended that IE was an integral part of Windows 95 and that it could not be separated without causing the operating system as a whole to malfunction. The plaintiffs argued that Microsoft was engaged in an illegal tying arrangement, by conditioning the purchase of a popular product (Windows 95) on the purchase of an additional, unrelated product (IE.)

The case came to trial in October 1998 before U.S. District Court Judge Thomas Pen-field Jackson, sitting without a jury. Jackson ruled for the plaintiffs in November 1999, finding that the facts fully justified the conclusion that Microsoft had sought monopoly power through illegal means. He appointed Chief Judge Richard A. Posner of the U.S. Court of Appeals for the Seventh Circuit to mediate the case, in hopes of bringing the bitter conflict to a quick conclusion. However, Posner could not broker a settlement, and Jackson issued his final order in April 2000. He ordered that Microsoft be split into two companies and that the companies desist from monopolistic conduct. A federal appeals court overturned this decision in June 2001. Although the panel agreed that Microsoft had engaged in monopolistic practices, it found that Judge Jackson had committed misconduct by making derogatory comments about Microsoft. The case was sent back to another district court judge, who encouraged new settlement talks. In August 2002, the U.S. Department of Justice and the states agreed to a settlement in which Microsoft did not have to split apart. Instead, Microsoft agreed to allow OEMs and consumers to add and remove access to certain Windows features and to set defaults for competing software. Microsoft also made available to software developers a host of software interfaces and tools at no charge, to allow the developers to write Windows applications.

Further Readings

Lucarelli, Bill. 2004. Monopoly Capitalism in Crisis. New York: Palgrave Macmillan.

Ottosen, Garry K. 1990. Monopoly Power: How It Is Measured and How It Has Changed. Salt Lake City, Utah: Crossroads Research Institute.

Scherer, F.M. 1993. Monopoly and Competition Policy. Brook-field, Vt.: Edward Elgar.

Zoninsein, Jonas. 1990. Monopoly Capital Theory: Hilferding and Twentieth-Century Capitalism. New York: Greenwood Press.

See Also

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