The Pros and Cons of a Monopoly Organization

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A real monopolist in conventional sense controls the supply of some services or commodities for which there is no very close substitute. He may not control the whole supply, but he controls enough of it to influence the price. He may be a single large firm or a group of firms combined together to form a cartel, a government or some other public authority. Monopolies may be world wide, nation wide or local.

A monopoly may be based on the possession of an exclusive legal privilege. Therefore most governments may confer legal monopolies upon themselves or upon a public authority. As a rule of thumb, a monopoly based on legal basis will have a monopoly only on its home market. Even there it may be subject to competition from imports but its government may strengthen its position by taxing or even prohibiting such imports.

Public utilities include undertakings providing water, electricity, gas, telephone and rail transport. They are referred to as public utilities not because they provide for essential needs but because they tend to be local monopolies. They require a relatively large amount of specialized plant and equipment hence their fixed costs are large.

In an article in the New York times titled ‘Dismantling Tepco’ the author supports the move by the local government of Tokyo of setting up of new natural gas facility that will compete with Tepco in terms of production and distribution of electricity in Japan. This move came in the wake of the earthquake that rocked Japan and battered the Fukushima nuclear plant hence paralyzing the supply of electricity for the capital

Tokyo Electric Power Company had all the hallmarks of a monopoly. Tepco was established by well placed government officials of Japan to serve as the sole distributor and transmitter of electricity in the whole of Japan. Tepco has over the years profited from unchallenged hold on the market. Supporters of the power industry are of the view that deregulation will hurt the country they cite it to be the reason behind blackouts in countries such as the United States which have deregulated markets.

The government recently decided to inject $11.5 billion into Tepco, with a view of keeping the company afloat as well as assist it compensate the 90,000 people forced to flee areas near Fukushima Daiichi. The bailout will inevitably lead to a spike in electricity rates. This will be counter-productive to the utility’s main purpose of keeping the rates of essential services affordable to majority of the people.

Tepco’s power is centered on government policies. Japan is the only country among industrialized nations that has not deregulated its energy grid. Therefore, utilities have a firm grip on both the generation and the transmission of electricity. On top of that, power companies have the freedom to set electricity rates in compliance to a complex system fraught with unclear expenses (Okumura 2011)

Rumors have it that Tepco paid inflated costs to members of Keidanren who furnished it with equipment. The company gave obscene amounts of money to politicians, funded academic research and placed advertisements in the news media, despite the fact that it had no real competitors.

It also doled lucrative postretirement jobs to bureaucrats from government ministries as well as some members of the national police. In return, they turned a blind eye to Tepco’s practices. Tepco went on to become a major player in Japan’s nuclear establishment, referred to as the “nuclear power village.”

A solar farm that could grow into a full-throttle revolt against Tepco and other utilities was established recently. The idea behind this move was to try and loosen the utilities’ firm grip on the power grid. It has subsequently won the backing of many bureaucrats who seem to be aligning themselves to the escalating popular sentiment against nuclear power.

Tokyo is trying to do the same albeit on a much smaller scale with its natural gas plant, which city officials say will produce sufficient electricity to power its subway system as well as light most public buildings. Some supporters of deregulation are cautious about going down the path of separating power generation and transmission. This move would inevitably lead to increased competition.

Japan’s power industry has experienced deregulation in the past with nothing to show for it. The futility of that procedure, which has become more evident since the incident in Fukushima, highlights the hardships challengers have to contend with.

It is evident that though the protection of Tepco as well as the industry was pioneered by Liberal Democrats, it has thrived under the Democratic Party of Japan, which clinched power in 2009 on the platform of extricating the complex and corrupt ties between business and government (Okumura 2011).

When operations in the Fukushima nuclear plant were paralyzed in March, the new companies perceived it as an opportunity to make their presence felt in the market.

But the government ordered all commercial customers — including the new companies’ customers — lowers their electricity consumption by 15 percent. That subsequently meant that the new companies had an extra 15 percent supply which the government of Japan wanted to be sold to Tepco for a price lower than what it charged its customer and consequently incurred a loss to the tune of $ 130,000.

In another attempt at deregulation, the other utilities were permitted to compete against Tepco and one another. Instead, they decided to maintain their monopolies as they were. In the aftermath of the Fukushima disaster, the other utilities have opted to back Tepco, afraid that its collapse would spell the same fate for them. Some went ahead to contribute $90 million to Tepco’s bailout, testimony to the influence wielded by the company.

From the article one gets the impression that the author’s intention was to depict Tepco or any other monopoly in bad light by dwelling mostly on its misdeeds. Tepco is said to have been established by highly placed bureaucrats with the intention of serving their political as well as personal interests.

These bureaucrats went to great lengths to ensure that Tepco remained the sole producer as well as transmitter of most power. Attempts to deregulate Tepco were thwarted or only made on paper with nothing to show for them in reality. Monopolies have their demerits and some of them will be highlighted.

For starters, monopolies lead to production of products and services that are of compromised quality. In the aftermath of the earthquake that rocked Fukushima, the nuclear power plant owned by Tepco was profoundly devastated leading to reduction in the supply of electricity in the whole of Japan. The government was forced to order the populace to reduce consumption of electricity by 15%. This would not have happened if there were other major producers of power in Japan.

Second, monopolies reduce the range of products or services from which the consumer can choose from. This therefore implies that the consumer will not be fully satisfied by whatever products or services they are offered by monopolies. They only use these products or services because they have no other option and they need the product or service at that point in time.

Tepco had at some point unnecessarily hiked the rate of electricity making electricity expensive for its populace relative to other nations such as the United States of America. Citizens of the United States pay much lower prices for electricity than their Japanese counterparts owing to the deregulation of production and transmission in their country (Okumura 2011).

On the other hand supporters of monopolies argue that they are beneficial especially when it comes to dealing with utilities. Utilities are sensitive in that when they are left in the hands of private investors who take advantage of the fact that they are of extreme necessity hence maximize on making profits out of them at the expense of the populace.

Therefore from the article, one clearly sees the pros and cons of having a monopoly organization or business and the effects it has on the social economical life of the society. Tepco plays a major role in the social economical life of the Japanese as the social, economical and political lives of the Japanese are greatly influenced by the day to day running of Tepco.

In addition, competition and entry of new energy players is also influenced by Tepco which has a great flowing both politically and financially. Therefore such companies such as Tepco will always play a great role in the economy and thus influence the way new entrants into its domain run their organization.

Reference

Okumura H. (2011) Dismantling Tepco. New York Times. NY. New York Times.

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The Pros and Cons of a Monopoly Organization

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