Monopolistic competitive market is a market structure in which firms have many competitors, but each firm sells slightly differentiated products.
Monopolistic competitive firms cannot earn economic profit in the end because in the short run they earn supernormal profit. This attracts new firms into the market in the long run given that the monopolistic market barriers to entry are low, firms have good knowledge of the market and there is an opportunity for the new firms to start up with their own way in differentiating their product to appear unique from their competitors.
Monopolistic competitive firms in the short run earn supernormal profits as indicated below.
As new firms appear in the market, the demand for the existing firm products tends to be more elastic and the demand curve moves to the left, decreasing the set prices. Eventually, the supernormal profit is eliminated.
Monopolistic competitive firms in the end
As supernormal profit attracts new firms into the market, the demand curve of the existing firms shifts to the left. This means that firms have managed attain their long run equilibrium.
In a monopolistic market, the prices are higher and the quantities are lower because they determine the prices being aware of the fact that the consumer has no other alternative.
A relatively inelastic demand curve favors the producers because a huge change in price results to an insignificant change in the quantity. Consumers have to bear with changes in prices because there is no alternative available in most cases. In an elastic demand curve, a slight change in price causes a great change in the quantity demanded. This is illustrated in the diagram above.
Homogenous products of a duopoly market
Firm 1’s profit maximizing quantity
We know that average revenue is (AR) =P (price), this means that P=300 – 3Q=AR
Therefore, to get total revenue (TR), we will have to multiply AR by Q (quantity). TR= Q*AR= 300Q-3Q^2
At a maximum profit, marginal revenue (MR) = marginal cost (MC)
We have to differentiate TR in order to find MR, thus after differentiating TR we find our MR to be 300-6Q. Using the rule MR= MC, we equate our values of MR and MC
300-6Q=100, after solving for Q we find the value of Q=33 1/3
But we know that Q=q1+ q2 therefore, 33 1/3= 50+ q2 we have to solve for q2= -16 2/3 when q1=50
When q2=20, we use the equation to find the value of q1,
33 1/3= 20+q1 and after simplifying the equation the value of q1 is 13 1/3
Pa= 11+ 9/20Pb, Pb=11+9/20 Pb,
For easy computation, let’s assume that Pa=p1 and Pb=p2 therefore,
No variable costs
p1= p1q1 = p1(90-2p1+p2) =90p1 – 2p12 + p2p1
dp1/dp1=90-4p1+p2 =0 or
p1=(90+p2)/4 (Reaction function of firm 1)
Similarly, p2=(90+p1)/4 (Reaction function of firm 2) Comparison between Bertrand and Cournot Competition:
Throughout the long decades during which governments and societies fought against the monopolies, cartel conspiracy for the sake of artificially raising prices and unjustified enrichment was the first evil stemming from their existence. It was incriminated to companies that had dominant positions in individual industry markets. However, such an argument cannot be applied to technology giants as almost all their customers do not enter into financial relations with them as it was 30 years ago. The expansion of these corporations rather significantly reduces than increases prices that the consumer has to pay. For example, one may find a three-time cheaper cable on Amazon in comparison with prices on Staples.
The rapid growth of companies that eventually became dominant in their fields is a crucial issue for many economists and politicians. However, today, it is evident that a new segment of the global economy has emerged (Moazed & Johnson, 2016). For instance, Google is capable of developing not only in the conditions of a steady reduction in costs (as the production of information hardware has demonstrated) but also with the free distribution of its core product. It creates centers of consumer attraction that investors rate higher than any other asset. Hence, it seems unnecessary and even harmful for the modern economy to break up such giants as Amazon, Apple, Facebook, or Google. It will cause a plethora of issues starting from unemployment and ending with the reduction of the quality of crucial goods and services.
Furthermore, it should be stated that there are still substantial sources of monopoly power in the global market available for the companies mentioned. Among these barriers of entry are economies of scale, patents, expensive lawsuits, and positive network externalities (Webster, 2014). Thus, to increase competition without breaking up the companies above, several actions to decrease the influence of these factors might be undertaken. For instance, courts may reduce the costs for the lawsuits against small companies regarding patent matters so that the legal process would not be so expensive for them. Court systems may define these expenses depending on firms’ size (a fixed percent from revenue) rather than taking established costs.
Response to “Market Power and the Big 4”
The discussion contains a couple of significant ideas and assumptions that provide the recipient with the opportunity to gain an in-depth understanding of the current situation in the international market. The author gives reasonable thought about the reduced possibility of entrepreneurs to be successful due to the vast market power of Amazon, Google, Apple, and Facebook. It is also true that the performance of the mentioned companies results in price savings. However, another substantial factor is that the Big 4 imposes its terms and prices on suppliers, which may be considered as a case of unfair competition. The author proposes an interesting option to increase competition – to put legal restrictions on reducing the price and to limit the number of products sold. Thus, the discussion demonstrates strong arguments and even lights the way of future research.
Response to “Penalizing success? Market Power Explored”
The author asks relevant questions and provides a strong thesis statement at the beginning of the discussion, which positively impacts on the further arguing. It is stated that breaking up the biggest companies in the international market will severely affect the global economy. This argument may be considered reliable, and it coherently leads to the core statement of the work – the Big Four does not have a monopolistic character but rather an oligopolistic one. Within the scope of the scholar dimension, opinions on the topic discussed are divided, and many academics assume that the four biggest companies as monopolies. Nevertheless, the author demonstrates the exhaustive rationale and a solid train of thought. Moreover, the discussion contains a detailed analysis of the Big Four’s success and significant propositions on increasing competition, such as mitigating competitive advantages.
References
Moazed, A. & Johnson, N., L. (2016). Modern monopolies: What it takes to dominate the 21st century economy. New York, NY: St. Martin’s Publishing Group.
Webster, T. J. (2014). Managerial economics: Tools for analyzing business strategy. Lanham, MD: Lexington Books.
In “Tech’s Frightful Five: They’ve Got Us,” by Manjoo (2017), the author gives their opinion concerning the so-called monopoly in the modern world, which is represented by five major and internationally renowned companies—Microsoft, Apple, Amazon, Facebook, and Google. He groups these corporations under one name, the “Frightful Five,” and claims that these companies are the flagships in their spheres to such an extent that they virtually exclude competition in the market (Manjoo, 2017). When attempting to place the aforementioned corporations in personal rank, Manjoo (2017) notes that he can live without social networking or special modern electronic devices. However, daily activities would become more boring since many gadgets have already made their way into usual daily life. The Frightful Five largely shapes the modern world economy and influences the development of certain trends. Nevertheless, while considering the activities of these corporations in terms of innovation, some controversial nuances may arise; in particular, the uniformity of goods produced. Based on the opinions of other researchers, it is possible to assess the prospects of the Frightful Five companies and analyze their work about innovative advancement.
Compare and Contrast Analysis
The theories of the various approaches to innovation are described by many authors, but the works of Schumpeter (1942) and Thiel (2014) are particularly significant studies. Schumpeter (1942) argues that any attempt to introduce new technologies and products leads to economic distress and, as a result, creative destruction. The opening of new markets and the promotion of current trends through the creation of innovative products is a business strategy that is doomed to bring down existing competitive links. According to the author, monopolization methods in the business environment adversely affect the development of the economy and do not allow the allocation of resources efficiently among all market participants (Schumpeter, 1942). Thiel (2014) presents a different opinion on innovation, arguing that the term monopolization can be viewed from different angles. According to the author, companies with monopolies—for example, Google—can own large assets in one area but do not dominate in other areas (Thiel, 2014). Creative monopolists form the modern market and provide consumers with relevant goods, thereby ensuring a stable demand. It is the concept of Thiel (2014) who insists on supporting such a business approach.
About Manjoo’s (2017) description of the Frightful Five, Thiel’s theory (2014) looks more appropriate. Even though both Schumpeter (1942) and Thiel (2014) assess a monopolistic approach to innovation as one aspect of the market, the latter’s work is aimed at encouraging the elimination of competition. Unlike Schumpeter (1942), Thiel (2014) approves of the lack of competition and is not against the domination of some corporations. Manjoo (2017) notes that, despite some controversial approaches to innovation and promotion in the market, the five corporations that he described have almost no analogs in the world in terms of the power of influence they wield. Schumpeter’s argument (1942) suggests that such a situation inhibits natural economic growth and prevents the normal development of business ties between buyers and sellers. Thiel (2014), on the contrary, encourages this concept and strives to emphasize that flagship companies knowingly occupy a leading position because they have authority among consumers. Accordingly, concerning the similarity of opinions, Thiel’s ideas (2014) are more consistent with Manjoo’s (2017) arguments than the theories of Schumpeter (1942), and it seems as though the modern market is moving towards creative monopolies rather than destruction.
Conclusion
Based on all the facts presented, the position held by Thiel (2014) fits better with Manjoo’s (2017) thoughts concerning the Frightful Five. Despite fears that the dominance of certain corporations in the market may cause a complete loss of competition, consumers have a right to choose those companies that they are willing to trust independently. If buyers are ready to purchase the goods of specific manufacturers, it means that they are satisfied with the quality of products. Moreover, according to Thiel’s (2014) assumptions, participation in different spheres of the market is not proof of monopoly in each of them, and competition is still possible. Therefore, the accompanying development of companies is possible, though today it is the aforementioned corporations that lead in their fields.
Initially, each new wave of information technology increased productivity and access to knowledge, each new platform was easier and more convenient to use; technology worked for globalisation anda economic growth. Over the years, companies such as Google, Facebook, Amazon, and others have introduced many business and technological innovations affecting the world. However, today such companies are accused of being large, undermining competition, causing addiction and destructive consequences for democracy, in other words – BAADD (big, anti-competitive, addictive and destructive to democracy) (Schrager, 2018). These enormous tech platforms really make wonder about the future prospects of fair competition. In his article “Sleep-Walking into a Monopoly: Competition Fears Spark Home-Buyer Warning”, published last year in The Sydney Morning Herald, Josh Dye raises this important question for regional level and a specific segment – the service of registering the transfer of property ownership in Australia.
The author in a brief but comprehensible manner describes the problem which arose after the regulator’s decision on obligatory electronic conveyancing. Taking into account that “online property exchange network is an effective monopoly,” controlled by one company – PEXA – there is a risk of the occurrence of monopoly giant (Dye, 2019, para. 3). As the author rightly claims, due to the obligatory nature of the service of e-conveyancing for customers, PEXA company has no real competitors, and concern arises about its unfair market advantage. Although, for now, the company declares the absence of plans to raise prices, in fact, there are no guarantees that in the future it will not behave like all other monopolists. The author makes a conclusion that digital transition implies some risks, and the case of PEXA represents this kind of risk – namely, occurrence of monopoly under the aegis of state.
Significance of the Issues/Questions. Author’s Biases
This issue is of crucial importance since any new competitors will face significant barriers, as in any monopoly market. The author, on unbiased basis, analyses consequences of PEXA monopoly position for customers and interoperability of similar platforms. No biases are observed in author’s approach and operating facts. He stresses that PEXA company already has network advantage, as “each party to a transaction must use the same network” (Dye, 2019, para. 13). This issue directly refers to the above-mentioned problem of information monopoly in modern economy.
The titans of the information industry are not just competing in the marketplace – they are increasingly the marketplace themselves, providing the infrastructure (or “platforms”) for much of the digital economy. Despite the enormous influence these companies have, the off-scale estimates of their value on the stock exchange show that investors expect it to double or even triple in the next decade (Moazed and Johnson, 2016). It should also be noted that network goods increase their value as the number of buyers grows, while the cost of the goods decreases as its value to consumers grows, since marginal costs tend to reach zero over long intervals. At first glance, information monopolies are incapable of doing significant harm. However, upon closer inspection, a number of serious threats can be detected (Ducci, 2020):
Low quality of products, as well as the level of information security. In the absence of competition, information monopolists do not feel the necessary pressure, so they are less worried about the protection of personal data and can take more personal information from users than in a healthy competition.
Low level of privacy protection is observed; since there are several companies in the online marketplace, consumers are limited in their ability to obtain better privacy protections. This increases such risks as cooperation with the state, secret control by the state.
With the development of technology and the growth of the volume of personal data provided by users, information monopolies are increasingly using it to their advantage.
Elimination of competitors. An information monopoly that controls a key platform can easily eliminate competitors, – for example, by limiting the functionality of independent applications.
Impact on the public. Information monopolies have a powerful tool: the ability to influence public opinion and perceptions of right and wrong.
Reduced innovation in markets. It becomes profitable for information monopolists to slow down the development of innovations so as not to lose their monopoly position.
Main Arguments and Findings Convincing
Despite such impressive list of possible consequences of information monopoly activity, the author did not mention any theoretical or fundamental background of the issue. The arguments given in the article are convincing for the reader but they say nothing about medium- and long-term consequences for ownership rights registration services, other governmental services for population, and all the more so on overall macroeconomic and national social level. The worst scenario is described in the article as increasing fees and charges.
Meanwhile, the value of article would significantly increase if the author considered the potential challenge of PEXA monopoly position from the standpoint of economic theory. In particular, it is evident that, although the considered company works in the information services sphere, in its essence, it represents almost classical example of state-private monopoly. Its lobbyist efforts brought it unfair advantages in comparison with other platforms for registrations. Moreover, this is the example of how public-private partnerships, spawns of sustainable development, can reborn into monstrous forms of monopolies (Moszoro, 2018). Officials need to understand that there is a huge difference between the calls for a competitive tender to select private companies for projects, rather than actual partnerships with the government.
The general public has little understanding of how public-private partnerships are actually used to increase the power of government. In truth, many of such partnerships are nothing more than government-sanctioned monopolies. These privileged businesses are provided with special perks such as tax breaks, free use of an outstanding domain, non-competitive clauses in government contracts.
In this regard, there is a need to take a closer look at such a phenomenon as natural monopoly, to clarify its place and role in the modern infocommunication economy. The concept of natural monopoly is interpreted ambiguously. On the one hand, natural monopoly is the one in which the creation of a competitive environment in the commodity market, regardless of the level of demand, is impossible or economically ineffective at the existing level of technological progress (Tepper, 2018). On the other hand, it is defined as an industry in which long-term average costs reach a minimum if one firm serves the entire market as a whole (Hubbard et al., 2019). It is interesting to note that both definitions are valid for PEXA.
The author’s arguments are convincing for general public, regulators, and stakeholders. He describes the issue in detailed and comprehensive manner. However, no fundamental scientific background is provided; the author does not make any attempts to link the problem with other macroeconomic or regulatory processes in the country. In this regard, the arguments cannot be called convincing, as they are of informative nature with some forecasts from the author.
The Accuracy of the Author’s Use of Economic Concepts
The situation is characterized by another important sign indicating that PEXA is a natural monopoly in the current environment – it is about low elasticity of demand. This happens because the demand for products or services produced by natural monopoly entities is less dependent on price changes than demand for other types of services, since they cannot be replaced by other goods. Registration of property rights is mandatory by law, so the demand for these services will practically not depend on the price. All these important points were not covered in the article. The author claims to present a serious analysis of the consequences of the actions of the regulator, but does not use the tools and concepts of economic theory for the analysis. He does not consider fundamental concepts of monopolies, and all the more so he does not apply concepts of monopolies in the information/postindustrial economy. The article is well written and the arguments are convincing but the overall style of writing resembles a review, without using any scientific concepts for justification of conclusions. Moreover, current and potential impact on all stakeholders is not analysed. It could be better if the author pays attention to the very foundations of the issue arose due to specified regulator’s decision.
Reference List
Ducci, F. (2020) Natural monopolies in digital platform markets. Cambridge University Press.
According to President Joe Biden, “the heart of American capitalism is a simple idea: open and fair competition.” Competition leads to innovation because businesses constantly try to improve their prices or services to attract customers. In 1890, antitrust law was formally established to ensure fair trade and prevent the formation of monopolies that use their market position to take advantage of consumers (Saylor Academy, 2012). However, the original antitrust laws could not have foreseen the creation of digital markets and new antitrust legislation must be passed.
In the 1870s and 1880s, various corporations were combined into one trust and effectively controlled entire industries: the Cotton Trust, Whiskey Trust, and Oil Trust (Saylor Academy, 2012). Consumers were outraged as monopolies led to excessive prices and inferior quality. In 1890, the Sherman Act outlawed monopolies and granted the federal government power to regulate trade (Saylor Academy, 2012). The Clayton Act was passed in 1914 and forbade the acquisition of competition, predatory pricing, and exclusive contracts (Saylor Academy, 2012). The Federal Trade Commission (FTC) was established as an independent agency to enforce antitrust law (Saylor Academy, 2012).
Standard Oil, American Tobacco, Paramount, and AT&T have all been targets for antitrust cases, but most FTC measures have had “little effect” (Hazlett, 2020, p.7). Despite this failure, these hundred-year-old legislative measures still form the basics of federal antitrust law today.
The landscape of business will be vastly different in 2021. The Information Revolution has radically changed human lives in just thirty years. Ninety-three percent of American adults today use the internet (Pew Research Center, 2021). Most of the users’ online interactions are mediated by only four companies. As of September 2021, Apple, Microsoft, Amazon, Alphabet (Google), and Facebook are the most valuable publicly traded companies in the U.S. (Szmigiera, 2021). Firstly, they act as both “operators for the marketplace and sellers of their products and services in competition with rival sellers,” creating extremely high entry barriers for third-party sellers (Colangelo, n.d.). For example, Apple sells smartphones, develops a digital marketplace for smartphone applications, and sells services such as Apple Music in competition with third-party companies like Spotify. Apple is incentivized to undermine Spotify and promote its application, and no anti-competition regulation exists to prevent it. Secondly, technological behemoths buy out smaller companies to maintain market power and create “digital ecosystems” (Newman, 2019, p. 1508). Google is known as a search engine but has also expanded into owning a mobile operating system (Android), a digital assistant, a video hosting service (Youtube), and driverless cars (Newman, 2019). In light of Big Tech’s methodic attempts to edge out the competition, American voters have been pushing for antitrust legislation regulating digital platforms.
In June, it was reported that five bills were proposed to the Judiciary Committee to encourage digital competition. “Ending Platform Monopolies Act” outlaws platforms with over fifty million monthly American users from owning and promoting a business that presents a conflict of interest (Feiner, 2021). This bill would make it illegal for Amazon to sell its products on its marketplace. “Platform Competition and Opportunity Act” shifts the burden of proof to companies to prove that their merger is lawful (Feiner, 2021). If Facebook decides to buy Snapchat, it will have to prove the merger will not lessen competition and pay higher fees to help fund the FCC. These measures were generally seen as promising, but the wording of the bills was frustratingly ambiguous and open to exploitation by technology companies (MacCarthy, 2021). If these pro-competition bills become law, it still will not mean that digital hegemony has been successfully resolved.
In conclusion, antitrust laws are fundamental to American capitalism that ensure fair competition and innovation and protect consumer interests. An increasing number of Americans spend their time and money online, but no antitrust measures exist to regulate the digital market. Apple, Facebook, Amazon, Microsoft, and Google have become the rulers of the internet. Congress is passing legislation to promote market competition, but this is merely the first step in combatting digital monopolies. Future lawmakers must also target consumer privacy, data collection, and digital echo chambers.
The monopolistic advantage hypothesis explains why corporations prefer to expand their operations internationally. Multinational corporations (MNCs) are often at a disadvantage compared to domestic enterprises because they must deal with liabilities associated with their foreignness, a lack of local know-how, and the high cost of gaining this information in other nations, yet they compete effectively with local companies. S. H. Hymer suggested this technique, and C. P. Kindleberger expanded on it, explaining why MNCs are so effective at competing against local enterprises. The microeconomic theory places the enterprise at the center and describes why capital and things go internationally. According to the hypothesis, corporations that employ Foreign Direct Investment as a method for internationalization tend to dominate specialized resources and competencies, giving them a degree of monopolistic power over foreign rivals. Foreign direct investors have a proprietary or monopolistic advantage over domestic enterprises. These advantages must include producing many goods at a lower cost per item, more superior technology, or a superior understanding of marketing, administration, or finance. Foreign direct investment arose due to defects in the product and factor markets. This study will conduct an article evaluation of many peer-reviewed works to understand the monopolistic advantage idea better.
Internationalization and performance: evidence from Chinese firms
The article “Internationalization and performance: evidence from Chinese enterprises” by Chao Zhou examines the internationalization–performance link using data from Chinese firms and the effect of company size on the relationship. The article quantifies internationalization by comparing foreign subsidiaries to overall subsidiaries (Zhou, 2018). Due to the absence of data on the foreign subsidiaries and total subsidiaries of Chinese A-share listed manufacturing businesses in current databases, the author compiled data on subsidiaries of Chinese A-share listed manufacturing firms using their annual financial reports from 2001 to 2014 (Zhou, 2018). The China Stock Market and Accounting Research Database collect basic accounting and market data (Zhou, 2018). Due to the article’s limited sample size of 535 manufacturing organizations, further research on unlisted Chinese enterprises or other internationalization strategies may shed more insight into the internationalization–performance relationship.
In conclusion, because this study provides new evidence for the internationalization–performance relationship using a unique longitude sample from China and a novel measure of internationalization, it emphasizes the critical role of firm characteristics in examining the internationalization–performance relationship, which may help explain previous mixed evidence. Thus, governments should assist small businesses in developing a long-term internationalization plan, providing additional assistance throughout the first and third stages of internationalization and advancing to the second and fourth stages. Additionally, policymakers should place a greater emphasis on restraining giant monopolistic corporations’ aggressive internationalization conduct.
Contextualizing international strategy by emerging market firms: A composition-based approach
Yadong Luo’s article “Contextualizing Emerging Market Firms’ International Strategy: A Composition-Based Approach” examines a composition-based logic for international expansion by emerging market firms (EMFs) — firms that leverage compositional investment, compositional competition, and compositional collaboration to achieve a unique competitive edge in global competition. The study demonstrates how EMFs creatively pursue an international strategy based on composition, allowing them to compensate for their weaknesses while capitalizing on their strengths during the global competition (Luo & Bu, 2018). They offer a competitive price-to-value ratio suited to mass international customers who are cost-conscious.
A survey of multinational firms in China was conducted to test the assumptions about how EMFs creatively pursue an international strategy based on composition. The result was that the extent and breadth of China’s external FDI had expanded dramatically over the previous decade, providing an ideal research environment for examining EMF’s distinctive development path in overseas markets (Luo & Bu, 2018). The research-validated ideas that a composition-based lens may give a fresh understanding of why and how emerging market enterprises might persist in international competition without owning conventionally characterized monopolistic advantages for some length of time.
In conclusion, this study proposes a composition-based logic for organizations that are often poor in global market power and the procession of monopolistic resources such as important technology and worldwide trademarks. While this rationale is especially well-suited for EMFs, it may be expanded and used for other economic-based multinational enterprises without similar strategic resources and influence.
Chinese multinationals’ FDI motivations: suggestion for a new theory
The article “Chinese multinationals’ FDI motivations: suggestion for a new theory” by Byung Il Park and Taewoo Roh aims to complement the conventional international business (IB) theory, the ownership, location, and internalization (OLI) perspective, which is effective at explaining the foreign direct investments (FDIs) made by developed market multinational corporations (DMNCs), and to suggest a new theoretical framework that can encompass foreign direct investments (FDIs) from Chinese multinationals. The research data comprises 206 Chinese multinational corporations (MNCs) that executed international mergers and acquisitions (IMAs) (Park & Roh, 2019). Logical regressions are used to statistically demonstrate that the learning incentive should not be omitted if the foreign direct investment (FDI) phenomena are effectively understood by including investment flows from developing (or emerging) to established nations (Park & Roh, 2019). While this work gives functional theoretical implications and suggests academic contributions, it has several drawbacks. For instance, the research focuses only on Chinese MNCs. Second, additional research must meticulously and accurately quantify learning reasons (Park & Roh, 2019). Thirdly, this research indicates that the former’s knowledge acquisition incentive sparks FDI from EMNCs to DMNCs (Park & Roh, 2019). However, the knowledge should be examined, which may be another area of study in the future.
In conclusion, to summarize, traditional IB theories, such as the OLI paradigm and internalization theory, have long tried to explain why DMNCs pursue global markets despite the existence of foreignness liabilities and have focused on their primary investment incentives. As a result, these theories do not effectively capture the primary FDI motives of EMNCs, and so are unable to grasp the FDI phenomena as its whole. Thus, there is a complement to the well-known triangle based on this concept that incorporates the knowledge-seeking drive and helps advance IB ideas.
Monopoly capitalism in the digital era
Coveri, Andrea Cozza, Claudio Guarascio, and Dario’s paper “Monopoly capitalism in the digital age” critically evaluates and adapts Monopoly Capitalism’s radical vision to the digital platform economy. Cowling and Sugden described the huge monopolistic corporation as a mechanism of planning production from a single strategic decision-making center, based on the critical concepts of Hymer and Zeitlin (Coveri et al., 2021). The research seeks to provide a paradigm in which digital platforms are seen as an evolution of influential multinational organizations. The authors attempt to apply the framework in which power and control are defined in our Monopoly Capitalism paradigm as levers for coordinating global production and influencing world societies to an Amazon case study (Coveri et al., 2021). Consequently, the authors investigate the framework on several levels, including how Amazon dominates other businesses and suppliers via diversification and direct control of data and technology. Amazon’s influence is related to global labor fragmentation and unequal bargaining leverage.
The research has shown the monopolistic position that massive digital platforms have taken in modern capitalism via the lens of the radical viewpoint advanced by Monopoly Capitalism academics. The study provided a framework for demonstrating how Hymer and Cowling’s theoretical legacy may be critical for comprehending contemporary monopolistic power in the digital platform economy (Coveri et al., 2021). Thus, prominent digital platforms should be seen as planning actors to extend influence over other players in their production and innovation networks. As a result, the latter’s wants and scopes became submissive to the demands and areas specified by the strategic decision-makers of huge organizations (Coveri et al., 2021). Additionally, the framework for examining Amazon, the latter being one of the most influential and unusual digital platforms of our day. Further, the research identifies four dimensions through which Amazon exercises its control: growth and diversification of its digital marketplace; monopolization of commodified data and leverage on technology; workforce fragmentation and surveillance; and strong bargaining power with governments.
In conclusion, a progressive approach targeted at economic and political democracy should prioritize personal data through data and platform infrastructure socialization. On the other hand, as a public good, data can be handled successfully for the benefit of society as a whole; this is because data feeds the algorithms that we all use and so are critical to enhancing the services. Although this topic extends much beyond the scope of this book, the dialectical challenge should thus be the effort to democratically manage data for the benefit of the whole society without jeopardizing the prospects for shared wealth that data may offer. As a result, the demise of modern monopoly capitalism — achieved through the socialization of data and their definition as digital global public goods — may pave the way for a renewed technological and social feasibility of democratic social planning while allowing for the emergence of new forms of democracy as well.
Three decades of export competitiveness literature: systematic review, synthesis, and future research agenda
The article “Three decades of export competitiveness literature: systematic review, synthesis, and future research agenda” by Justin Paul and Rahul Dhiman aimed at systematically analyzing the literature on export competitiveness (EC) and providing an overview of various determinants and the methodological trends in the subject field, making it possible to develop a roadmap for future researchers. The paper employed a systematic literature review (SLR) method where the authors have covered three decades of research articles published in Scopus-listed journals between 1991 and 2020 (Paul & Dhiman, 2021). The determinants of EC are synthesized, and widely used theories and methodologies are identified and classified.
Conclusion
In conclusion, to summarize, there has been no complete evaluation of the theories, background, structures, and approaches in this domain until now. As a result, this review provides both detailed insights into the subject and a unified picture of the subject field, with critical determinants such as labor and capital productivity, labor costs, exchange and real effective exchange rate (REER), domestic gross domestic product (GDP), trade liberalization, and barriers identified (Paul & Dhiman, 2021). The results indicated that EC has evolved into a scientific measure as research in this area has shifted toward quantifying EC and its factors.
Paul, J., & Dhiman, R. (2021). Three decades of export competitiveness literature: systematic review, synthesis, and future research agenda. International Marketing Review. Web.
Park, B. I., & Roh, T. (2019). Chinese multinationals’ FDI motivations: suggestion for a new theory. International Journal of Emerging Markets. Web.
Zhou, C. (2018). Internationalization and performance: evidence from Chinese firms. Chinese Management Studies. Web.
A monopoly is a market condition where only one firm can operate and produce profitably due to structural reasons (Mosca 2008). The textbook diagram of a monopoly firm is given in figure 1. Figure 1 shows how a monopolist assumes monopoly power and charges extra price. The source of monopoly power is by curbing production to price its products higher, creating barriers for competitors to enter the market, and by capitalizing on key resources in the industry.
Figure 1: Monopoly
A firm can curb production and price its product at higher than competitive price. This allows the monopolist to gain “rent” and impose a deadweight loss, characterized as “inefficiency” over the market (Mckenzie 2010). In this way, the firm may raise the price of its product at a price that is above its marginal cost of production. Further, it can create barriers for entry for new entrants or competitors and gain power over overpricing its product. The barriers created by the organization are different means employed to gain market dominance. For instance, Microsoft created a dominance in operating systems market, by bundling Internet Explorer browser and windows media player (Mckenzie 2010). Another example for gaining market dominance is that done by AT&T, by contracting with Apple for iPhone. This allowed iPhone to operate only in AT&T network. Further, Apple rejected the proposition of Google for allowing Google Voice, an application for Internet Phone, to operate in iPhone. This gave AT&T monopoly power to provide service to millions of iPhone users (Mckenzie 2010). A monopoly extends its profit by taking the consumer surplus in order to increase its profit. Another source of monopoly power is to gain control over the resources. For instance, an organization may have exclusive rights over a particular ingredient required to make a drug.
According to Mckenzie (2010), all monopoly-related theories are based on a situation when the monopolist has been created. He states that a firm may have gained monopoly power by innovating a better product or selling it at a price lower than its competitors. The use of patents, trademarks, or copyrights may also become a source of monopoly power to organizations. For instance, Apple has a patent over the designs of the iPod and iPhone which gives the company monopoly power. Marketing tools like exceptional promotional campaigns, as was done by DeBeers, create monopoly power (Sundie, Gelb & Bush 2008).
The patent is discussed in this section is titled “Three Dimensional Construction using Unstructured Pattern” (Intellectual Property Office 2010). Google, under the patent number US7660458B1, reserves the right to use it. The object is a system that can be used in processing images of documents. The object uses an unstructured infrared pattern on a target object and it captures stereoscopic images of the patterns that are projected on the desired object. This object operates like an infrared camera. Thus, the objects create a three-dimensional image of the target document, and can be used for rectification or realignment of the image of the object. This object is supposed to be useful in scanning books, magazines, or any other kind of printed material into digital format with better imaging, storage, and distribution capabilities (Intellectual Property Office 2010). This device will help in the digitization of bound volumes of books, journals, periodicals, etc. that would help libraries, or archives to allow multiple usages. This object aims at allowing Google to increase its power over the digital books market. This would allow them to create a legal monopoly over the digital book market. This system is more effective and better than previously used scanners as books need not be pressed to the scanner to scan the pages, which may damage old books. This system allows the infrared projector to read as well as correct the curvature of the page (Intellectual Property Office 2010). As a part of the company’s Google Book project, Google is trying to gain control over the digital book market. Further, the company’s association with the authors’ guild in the US will allow it to gain greater power over the eBook market.
The traditional book market was competitive due to many publishers and libraries, set prices for different kinds of books. Then the digital book market was underdeveloped with only a few offering eBooks for sale. Therefore, Google has created a barrier to entry initially by patenting the 3D scanner so that new entrants have either to buy it from them at a very high price or make another scanner with similar or better capability to make the library. Digital library is a novel industry with Google having the legal right over the scanner that is used by the company. Thus, the market structure presently will be similar to the diagram drawn in figure 1, as Google is the dominant player, and thus, a monopolist in it. Thus, with the patent, Google has created a market or industry for the company to operate as a monopolist.
Reference
Intellectual Property Office 2010.Web.
Mckenzie, RB. 2010. ‘In Defense of Monopoly’, Regulation , vol. 32, no. 4, pp. 16-19.
Mosca, M 2008. ‘On the origins of the concept of natural monopoly: Economies of scale and competition’, European Journal History of Economic Thought, vol. 15, no. 2, p. 317 – 353.
Sundie, JM, Gelb, BD & Bush, D 2008. ‘Economic Reality Versus Consumer Perceptions of Monopoly’, Journal of Public Policy & Marketing, vol. 27, no. 2, p. 178–181.
A perfect market or perfect competition is a market situation where neither the sellers nor buyers, have the market power to influence the prices of goods and services. In such a market, identical goods are sold at a common price (Roberts, p. 212).
There are specific characteristics of a perfectly competitive market and they include:
Adequate Information: Consumers and producers are assumed to have enough information about the market conditions particularly the price prevailing in the market.
Free Entry and Exit: Manufacturers, buyers, and sellers find it relatively easy entering or leaving the market.
An imperfect market or monopolistic competition exists when either the sellers or buyers have sufficient control to influence the prices of goods and services. An imperfect market deals in differentiated products (Nicholson, p. 547)
The characteristics of an imperfect market are as follows:
No free entry and exit.
Supply and demand are elastic due to few sellers and buyers.
Goods sold in the market are usually heterogeneous.
Comparing both models
Both markets can make excess profits in the short run (Roberts, p. 244).
Both maximize profit at the output level where marginal cost (MC) equals marginal revenue (MR)
Product differentiation takes place in a monopolistic competition but does not exist under perfect competition.
Monopolistic competition depicts a real-world market situation whereas perfect competition is an ideal market situation that rarely exists in reality.
Both markets face the same competitive market factors.
Examples of markets that are close to both models
Industries that are close to perfect competition are: (Nicholson, p. 642).
Stock exchange
Free software
Fruit and vegetable vendors
Fish vendors
Industries close to monopolistic competition are:
Restaurants
Cereal
Clothing
Shoes
Advantages and disadvantages of perfect and monopolistic models
Advantages of perfect competition include the following: (Smith, p. 49).
Lack of Scarcity: There is no scarcity because of the availability of many producers.
Low prices: Consumers are charged low for goods because of the availability of the same goods.
Information: The adequate information available enables consumers to know the prices of goods.
Disadvantages of perfect competition:
Wastage: There is a lot of wastage because of the availability of many goods.
Insufficient funds: There is a lack of funds for investment due to the low prices charged to consumers.
Variety: The homogenous nature of the market discourages products or goods variety.
Design and specification: There is a lack of competition over product specification and design.
Advantages of a monopolistic competition:
It prevents over-production: This is a result of the fact that the sole producer studies the market demand before embarking on production.
It prevents waste: The type of wastage experienced in a perfectively competitive market is greatly avoided in a monopolistic situation because production is done according to demand.
Good use of resources: Raw materials equipment and factors of production are put to effective use.
Leads to the invention: People carry out researches that lead to the discovery of new products to enjoy patent laws.
Disadvantages of monopolistic competition: (Smith, p. 55).
It increases the cost of goods: The monopolist being the sole producer sells his goods at exorbitant prices to make fantastic profits.
Consumers bear the brunt: Consumers are always at the mercy of the exploitative propensities of the monopolist.
Artificial scarcity: Monopolists deliberately reduce supply to cause artificial scarcity and make fantastic profits.
Results into inflation: The immediate result of a reduction in Supply and eventual scarcity of goods is inflation.
Works cited
Nicholson, Walter. The economics of competitive markets, Microeconomics Theory: New York and Oxford: Oxford University press. 2005. Print.
Roberts, Paul. Theory of production, a long period Analysis: Stanford: Standard University press. 2007. Print.
Smith, Victors. “Economic Theory.” Allocation of economic resources: 1995. Web.
The United States of America introduced the Clayton antitrust Act in October 15, 1914. According to Johnston and Johnston (256), the Act aimed to deter unfair business practices such as monopolistic market structures, which affect negatively the consumers due to lack rivalry in the market. Conventionally, competition is healthy and it always works for the benefit of the consumers because the competing companies have to tailor their products to suit and appeal the users.
The founding of the Act based on the Sherman Antitrust Act 1890, which preceded it. The Sherman Antitrust Act 1890 had failed to produce the desired impact in curbing the unfair business practices. As a result, there was amending and reintroduction of the Act as the Clayton antitrust Act in 1914 (Clark 396).
Effects and Significance of Clayton antitrust Act 1914
The United States shuns monopoly since monopoly can cripple an economy if not kept in check. It does so by infringing on consumer freedom for the sake of a few companies. After the world war, the economy of the United States began to grow because of improved infrastructure.
However, monopolistic tendencies prevented international and foreign trade through high taxes and tariffs (Clark 396). To stimulate the growth of the economy further, the government required to put in place measures, which would finally put an end to monopolies in the market.
Initially the United States government used fines to curb the monopolistic tendency but later introduced the Sherman Antitrust Act in 1890 and then the Clayton Antitrust Act in 1914. According to Clark, prior to the anti trust Acts the government did not regulate the market (396).
This gave companies the freedom to compete as they saw fit but also affected negatively on consumers in situation where a single company controlled the market and held a sizable portion of all the resources in the market compared to other players in the same market.
On introduction, the Clayton Antitrust Act 1914 protects consumers’ right through fair trades, which are achievable through fair competition in the market (Johnston, and Johnston 256).
The Act provides guidelines for companies as to which practices are illegal to engage in and for which, if found guilty, the company is punishable by law. For example, the Act stipulates that companies should not restrict buyers from exercising their right to purchase from alternative suppliers in the market if they wish to continue transacting with the organizations in future.
The Act was able to curb monopolist tendencies in the United States and according to Clark (396); the government was able to prosecute nearly a hundred companies engaging in the vice.
Although the Act stimulated economic growth in the United States, it also serves to oppress companies who can amass more wealth from the public by using strategies that give them more power than their counterparts do in the market.
The Act allows equitable wealth distribution in the society through restricting tendencies, which could result into a few wealthy in the society. According to Clark (396), the antitrust laws discourage capitalism by ensuring means of production is not held by a few people in the market to restrict monopolies and encourage rivalry in the market.
According to Johnston and Johnston (256), the antitrust laws serve to promote consumer freedom through allowing them the chance to choose from alternative products available from alternative companies in the industry. When the market is a monopoly it dictates the products that consumers consume because there is no alternative market. Antitrust laws also accord consumers financial freedom by allowing them to choose from competitive market prices.
Sometimes monopolist market structures are important in that they serve consumers better. They also protect the consumers’ rights since provision of some products and services cannot take place through open market. The courts have widely interpreted the Clayton Antitrust Act 1914.
Some critics view the interpretation as an infringement on company’s rights to make profit even if they are not infringing on consumers’ freedom. This goes against the principle that there should be reward for hard work. The Act does clearly stipulate when the government should hold companies guilty of monopolistic tendencies even if they are not infringing on consumer. It has left the decision at the peril of the courts.
The antitrust Act does not restrict monopolies as recommended by the United States to include companies, which appear to be operating as monopolies (Johnston and Johnston 257). This aimed at deterring companies who have found loopholes to continue dominating the market even if they do not have monopolistic characteristics.
Conclusion
The Clayton Antitrust Act since its enactment in 1914 has stimulated economic growth in the United States of America by advocating for consumer freedom and elimination of monopolies in the market. Monopolies reduce rivalry in the market, which results into production mechanism, which few individuals own and control in the economy. Moreover, monopoly in market harms the consumers because the monopolistic company knows consumers have to use its products regardless of the price.
Works Cited
Clark, Cynthia. The American Economy: A Historical Encyclopedia. United States: ABC-CLIO, 2011. Print.
Johnston, David, and Johnston, Daniel. Introduction to oil company financial analysis. Oklahoma, USA: Pennwell, 2006. Print
In economics, monopoly arises when there is only one single provider of a particular product or service in a given geographical area. Monopolies can be government regulated or natural market forces driven. In both situations businesses that monopolize the market are advantaged relative to competitors in markets where competition is involved. There are normally substantial barriers to entry of monopolized markets. Monopoly sets the market prices. Antitrust laws help in preventing the emergence of monopoly markets (Estrin and Laidler p. 207). Although markets are controlled best by the forces of demand and supply, governments’ intervention on monopolies to protect consumers from exploitation is actually necessary.
Government regulated monopoly
In this kind of regulation, the government sets rules and regulations to control the operations of firms that have monopoly power in their own industry (Witztum 314). The laws may also include attempts by the government deciding to monopolize certain sectors such as security. At best governments weaken the power of monopolies. This is inclusive of the barriers to competition that exists in monopolized markets. As discussed below, the government does this in several ways.
Price control
Monopolies control the price of goods or services they offer which may not always have alternative. For example, a water company that controls supply in a particular area. There is no alternative good to water. Customers have no choice but to buy from the company at any cost. A government directive on the maximum price that can be charged is a necessity to protect consumers when demand is too high. Control of natural resources such as minerals makes it easy for companies to be monopolies.
Large capital requirements
Companies sometimes attain monopoly status because of the large capital required to provide alternative sources of supply (Eaton and Eaton 147). An example is a company in power transmission and distribution. The cost of requisite infrastructure is enormous. The possibility of another investor venturing in that market is remote. Governments normally become the competing investor or take control of provision of such services. In so doing, it safeguards citizens from the insecurity of supply. Raising of large capital especially over large periods of time is easily done by governments than individuals or private institutions.
Legislation
Governments normally put in place regulations to govern the conduct of business monopolies (Nicholson 573). It is through reduction of anti-competitive agreements that markets allow for competition. These include encouraging production, technical development and investment in the affected sector. Sharing of markets and supply sources through trade agreements do protect against monopolies too. Application of same trading conditions to equivalent transactions makes the market fair.
Technology
In circumstances where the government has not invested in technology, private companies that are technologically advanced monopolize the markets. Subsidies on the kind of technology are provided in such cases to enhance competition.
Sensitive sectors
Sometimes governments decide to monopolize in certain sectors due to their sensitive nature. For example, in areas involving security or defense, provision of services may be limited to state agencies. Some countries ban armed private guards and allow such services to be provided only by the government.
Market regulated monopoly
In this method the government does not regulate the operations of monopolies in the market. The market is left to operate on a demand and supply course ceteris paribus. The monopolies determine price depending on market demands to maximize profits (Katz and Rosen 78). Any competitor in the market does not receive help from the government. The monopolies regulate supply in order to maintain prices that they prefer as market forces take their course. Typical demand and marginal revenue curve with hypothetical values in market controlled monopolies appears as in the graph of figure (a) shown. Unfair competition occurs as the monopolies can afford drastic under pricing of their products. This further ties the customers to them a move their competitors cannot afford. Non price action such as advertising is shelved. Since the monopolies are the sole suppliers, such practice is for public relations to avoid customer antagonism.
Figure (a)
Demand does go down because in a free market demand is price sensitive and monopolies keep their prices on increasing trends. Marginal revenue reduces as extra units can only be sold by lowering price on all units sold. The upper portion of the curve in the figure is elastic while the lower part is inelastic. Monopolies prefer the elastic region since they can increase revenues by lowering prices.
Conclusion
In most cases monopolies arise due to unavoidable factors. These include, control of scarce resource or inputs and government created barriers in legislation. Network externalities, capital requirements and product pricing also lead to formation of monopolies. The monopolies like any other business aim to maximize profits in the industry involved. They employ various tactics to maintain the status quo and enjoy the competitive advantage. This however hurts consumers because of the higher prices. In some cases, service delivery is poor, but the monopolies are aware that consumers have no option. There is need therefore for governments to regulate monopolies in order to protect consumers from exploitation.
Reference
Eaton, C. and Eaton, D. Microeconomics. New York: Prentice Hall, 1989. Print.
Estrin, S. and Laidler, D. Introduction to microeconomics. California: Harvester Wheatsheaf, 1995. Print.
Katz, M. and Rosen, H. Microeconomics. Boston: McGraw-Hill, 1998. Print.
