Monopolies Essay Research Paper Monopolies Effect on

Monopolies Essay, Research Paper

Monopolies Effect on Resource Allocation in IndustryMonopolies are under constant critics from the public and otherproducers of being polutive, straining to competition and they areaccused of worsening resource allocation. Whether this is true ornot, depends on the specific company, but certain characteristicsare possible to define. It is these I will describe in thefollowing, and hence conclude if monopolies worsen or improveresource allocation. It is important to distinguish between competition and monopolybefore describing advantages and disadvantages of both. Manymonopolies are government owned. This means that the incentive tostrive for more profit, better conditions etc. is gone. This is dueto the fact that, if there is a loss, the government will cover it,and government owned companies seldom strive to achieve maximumprofits. A lot of the characteristics are also seen in privatelyowned monopolizing firms. When they become so big, that competitionis practically gone, the incentive to make even more profits, andbeing innovative diminishes. In a competitive industry this is not the case. The fear ofloosing your job, not being able to compete, your products becomingobsolete etc. are important factors, which stimulate productivity. It is therefor obvious that the competitive industry will tryharder to allocate their resources in the most efficient way. To land, the external costs in a competitive industry will oftenbe pollution, seeing that the firm will strive hard to diminishtheir costs resulting in the firm ignoring ‘unnecessary’ costs. Themonopoly owned by the government, would never be able to ignoresuch a serious matter, and they would have to pay the costs. Amonopoly would also have to be careful not to damage its image,seeing that is, in many cases, already is unpopular.

Capital, on the other hand, is often to the benefit of a monopoly,since they produce at a large scale. To fully utilize capital, alot of labour is needed, labour which a monopoly is expected tohave, and a smaller competitive firm may lack. For example, a blastfurnace might need a crew of 24 men working night and day, to fullyutilize it. The monopolizing company may be able to provide themen, but the smaller firm might not have the money to hire all the24 men at night, seeing wages are much higher at then. The questionthen is if the competitive company is so much more efficient due tohard work, that they still can produce more than the monopoly. When it comes to labour, it is obvious that a competitive industrywill strive to utilize the workers at a maximum level, due to thedesire of minimizing costs, and workers will in general be veryefficient due the reasons mentioned above. The workers in amonopoly, often loose the feeling, that their work makes adifference in the firm, making it hard for managers to fullyutilize the them. In my opinion, the characteristics described above are not asvalid any more. Companies, which enjoyed monopoly status in thebeginning of the 80’s, like IBM, are now realizing that nothinglasts forever, and they have be innovative, even if the competitionis not a great threat. Bill Gates, owner of MicroSoft, has veryadmirable policies concerning this. His firm is not a monopoly, butit is definably a cutting-edge firm, which is shaping the future. One rule he has, is that every six months the bottom five percentof the company’s workforce (in terms of performance) get fired*. Itis his goal to make his own products obsolete, not letting othersdo it, and it seems he is achieving that goal. Allocating resourcesin monopoly does not have to be worsening, but times change and somust management.


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