Essay on Regulation of Monopolies and/or Highly Concentrated Industries
Number of words: 995
Introduction and Arguments for Deregulation
A monopoly is a situation where a company or business takes a dominant position in a specific industry to the point of excluding other viable competitors. In addition, a monopolistic market is characterized by a single company controlling the operations of a particular industry or market and determined the supply and price of the goods and services in the market. In countries that advocate for a free market, monopolies are discouraged because they often result in uncompetitive market prices, fewer or no alternatives for products and services, accumulation of wealth and power to specific individuals and low-quality goods and services. On the other hand, governments and economists advocate for regulation of monopolies to protect the consumers’ interests, to guarantee consumers market competitive prices for goods and services, ensure that companies offer high quality for their items, regulate the monopsony power of businesses, and encourage healthy market competition.
Arguments against Regulating Monopolies
However, some economists have put forward arguments against the regulation of monopoly markets. For example, natural monopolies such as public utility companies whose startup costs and market demand necessitate anticompetitive structures make it difficult for the government to regulate the number of businesses in the industry (Shimsauser, 2017). In addition, the average costs incurred by natural monopolies decline with production volumes where the company can meet the market’s demand at a lower price than if several firms operated in the market. Moreover, giant tech companies that have been in the market longer and have offered superior products and services to consumers enjoy brand popularity and customer loyalty, making it difficult for other smaller firms to enter the industry. Further, deregulating monopolies encourages research and development where firms channel the capital and resources to research and development projects instead of ensuring compliance with government regulations. Additionally, relaxed government regulations result in innovation and the creation of new ideas, formulas, and products, leading to copyrights and patents. Patents and copyrights also protect the financial interests of the creators by ensuring that competitors cannot develop similar competing products and ideas without their approval.
Reasons for regulating Monopoly Firms – Big Tech Companies such as Google and Facebook
On the other hand, large tech companies such as Google and Facebook have been revolutionizing and growing without government interference and control, and recently government officials in America and Europe have developed some criticism around the freedom granted to them. One of their reasons is their immense ability to extract data and the power they have to use to monetize the data without their customers’ knowledge (Taplin, 2017). For instance, Facebook is facing charges of selling personal data of its users to Cambridge Analytica, a UK based data mining and analytics firm. Many experts argue that Facebook violated the 2011 data privacy agreement they had with the government when they allowed an application developer to share the personal information of millions of Facebook users without their consent.
Moreover, studies have shown that tech companies – Facebook and Google need to be regulated to ensure individuals and society are protected from abuse, to encourage healthy competition and innovation and determine what parameters constitute private data and monetization of data collected (Taplin, 2017). In addition, most individuals rely on the creations by tech companies to run their businesses and day-to-day activities. Hence, there are risks if these innovations and competition are not regulated to safeguard consumer and other firm’s interests.
Reasons against regulating non-monopoly firms – Pharmaceutical Companies e.g. Johnson and Johnsons
Then again, big pharmaceutical companies providing prescribed medication to most American citizens have been reaping profits at the expense of their health. For instance, since 2018, American citizens have spent an average of 535 billion dollars on prescription drugs (Patterson et al., 2020). For example, pharmaceutical firms in the U.S.A receive substantial government subsidies such as funded research and development projects and tax breaks, yet they continually charge exorbitant prices for their drugs. Further, the majority of the Americans who have type 1 diabetes have engaged in insulin rationing to manage the high costs of insulin and make the insulin last longer. While consumers continue to pay exorbitant prices for their medication, reports by Government Accountability Office (GAO) showed that the profits margins earned by non-pharm companies ranged between 4-9%, while pharm companies ranged between 15-20% attributed to their unfair market practices such as non-competitive medication prices and patenting of vaccine and medicine formulas. For example, in 2018, Allergen, Johnson & Johnson and Pfizer Incorporation made 90 million dollars in profits while the citizens spent 535 billion dollars on prescribed medicine (Patterson et al., 2020). However, this is not equivalent to the tax dollars paid by the citizens to fund their research and development projects. Consequently, the Americans are not receiving value for their tax dollar paid.
In conclusion, monopolies should be regulated and given some level of freedom adequate to enable their growth and innovation. Too much freedom or deregulation may have long-lasting impacts on the economy and consumers, while strict regulation and monitoring may inhibit growth, negatively affect quality standards for goods and services. Therefore, regulators need to draw a delicate balance between what industries they will regulate and those that will operate as monopolies. However, despite allowing monopolies to operate freely, regulators should ensure structures to guarantee self-regulation and checks for the consumers’ and economy’s interests.
Patterson, J. A., & Carroll, N. V. (2020). Should the United States government regulate prescription prices? A critical review. Research in Social and Administrative Pharmacy, 16(5), 717-723.
Simshauser, P. (2017). Monopoly regulation, discontinuity & stranded assets. Energy Economics, 66, 384-398. https://www.sciencedirect.com/science/article/pii/S0140988317302232
Taplin, J. (2017). Is it time to break up Google?. The New York Times, 22. https://sites.google.com/site/economiaindustrialuc3m/material/volvimosaunmundodemonopoliosnaturales