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Monopolies Exist in Two Ways


By Aves Hawk


There are only two ways for a business to establish and keep a monopoly in its industry.


One is through providing a superior product or service over the long-term. Usually it takes time for a business to build a reputation, establish market share, and turn out a superior product on a consistent basis. There are a few exceptions such as Facebook which have almost appeared overnight. Even then, there are many other competitors such as Myspace or MSN that will pick up market share as soon as the quality of the Facebook product decreases. Basically, the monopoly only lasts as long as the quality of service or product is better than all of its competitors.


The only other way to establish and keep a monopoly is through various forms of Government intervention. These can come in the form of tax spending, new money spending, and legislation. Legislation is by far the most complicated since there are so many different ways legislation can be used and implemented.


One way to use legislation is through direct spending, of tax revenues and newly created money. This can be used to give contracts to favoured businesses, as is often the case with military related contracts, pharmaceuticals, finance, and many others. This only provides a one-time short-term boost until the contract ends, unless contracts are continually awarded in this manner.


By far the biggest factor is legislation. Legislation sets rules that businesses must follow to go about their daily operation. Legislations sets rules for starting a business, licensing, zoning, disallowed products, minimum wages, etc, etc, etc. What all of these rules have in common, is that they increase the operating expenses of a business. This means that the more rules there are, the more likely a business will down-size, go bankrupt, or not even get started. The main result is that small businesses, which are the backbone of the middle class and a major indicator of a healthy economy, are driven out of business. To the average person this means fewer jobs, higher unemployment and lower wages.


One way businesses get around the costs of regulation is to pass the costs on to the consumer. Sales taxes are a great example. The business even tells you that a certain percentage is going straight to the Government. What is not really obvious is when costs of production increase, businesses raise the price of their product. This is necessary for the businesses to exist, if it didn't increase revenues it would not be profitable. Obviously the cost of the product can only be raised as long as people continue to buy the product. Once margins have been narrowed so far, even higher prices will not be able to keep a business profitable. To the average person this means higher costs of every-day products and services.


Legislation actually allows the Government to create its own monopolies such as the postal service, railway services, finance/banking, military, police, etc. These monopolies exist because of legislation not because they are providing an outstanding product. There is no incentive for that business to focus on quality of service because it has no competitors, so all of the demand will flow to this one business even though product or service quality may be non-existent. This means that most Government created monopolies are often very slow, inefficient and do not function properly. To the average person this means long lines, poor service, malfunctioning products and high prices in relation to quality of product or service.


Another problem with legislation is that it is easily changed by special interest groups. The way democracy works is that the top 51% of the voting public gets legislation created in their favour. The result is that special interest groups, activist groups and corporate lobbies only need to convince this 51% to implement a certain change. All of these groups are easily swayed by sponsorship funding. Essentially it is he who has the money makes the rules. In the current economic environment it is big corporations that make the biggest sponsorship contribution to these groups. Basically, this means that these big corporations, whether they arrived at their current position legitimately via quality of product or illegitimately via existing Government interventions, have the biggest influence in shaping legislation. The result is that these corporations get to create legislation that favours their business. Often this is done by creating rules that are detrimental to its competitors. This is seen in the meat industry where the few big meat processing businesses work together and have managed to get legislation in place that raises operating costs of small processing businesses. To the average person this means higher prices and lower quality products and services.


The only legitimate way to have a monopoly is to provide superior quality. Any form of monopoly that exists through various ways of Government intervention is artificial or illegitimate. With the absence of legislation these would not exist. The common result of artificial monopolies is less competition, lower product quality and higher prices. In other words, the more of these types of monopolies exist, the more expensive it is to live.

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