Monopolies: an erosion of free market economy

In the modern world, the economic system that has totally prevailed is free market capitalism. Over the last centuries, no other system has been proven to be more efficient, free and just. Based on the premise of free choice and free exchange of goods and services under capitalism, the output has been maximized, unprecedented wealth has been created and the living standards of people have also been historically improved all over the developed world. Technological progress has fueled productivity and human services into historic highs and through modern conveniences our lives are being progressively better as times goes by.

Though extremely resourceful and cost-efficient and with a great social output, free market is not without faults or misfunctions. Sometimes freedom has its price. One of its most crucial internal dangers is the gradual formation of monopolies. When a sector or industry becomes dominated by one corporation, firm, or entity, then there is a monopoly. If you think about popular search engines, video or movie streaming websites, then Google, YouTube or Netflix will pop out first. That is what we call a monopoly.

Monopolies can be characterized as an erosion of free markets and can be rather harmful for consumers and the economy. Capitalism is forged upon freedom of choice and the de-facto existence of a monopoly takes that right away from consumers. Monopolies can control the volume of production and supply, the pricing of products or services, even above the seller’s marginal cost that leads to a high monopoly profit and eventually affect every single aspect of the relative industry. Therefore, their powers are tremendous over both the supervisory institutions and the public. Consumers have no other choice but to use their goods or services – no matter the price – in the absence of competitive products or else search for viable substitutes, if there are any. The basic idea around free market economy is free and fair competition, while a monopolized industry is characterized by the lack of it.

Specifically, it implies substantial restrictions and obstacles for new businesses to enter, solidifying the dominance of the monopoly. Contrary to an industry under free competition or even an oligopoly, where new companies emerge and invest in the market often and more easily, the capital and organizational requirements for doing so in a monopolized market are immense. At the same time, the brand name that a monopoly carries is extremely difficult to be offset by another company and this might require a competitive product with some new and great value or rarity that would change the consuming patterns in this market. Monopolized markets lead to absolute power and control for the dominant company which is hardly ever a good thing and of course against the concept of the free market.

Unless they are developed naturally because of worldwide support and enthusiasm from consumers, buying their products and progressively increasing their market share to the level of becoming a de-facto monopoly, companies can’t just turn into a monopoly in a genuine free market. Innovative businesses, like big tech corporations, are the exception rather than the rule. In reality, most monopolies are either established by the government or developed as a result of multiple mergers and acquisitions. This is a strategy widely used by modern companies to obtain a larger share of the market to increase their own profitability. Although this seems completely acceptable or even justified, the truth is that ultimately hurts both the market and consumers, as mentioned earlier. Holding a dominant position in a market is often not illegal itself, however certain behaviors can be considered abusive and should be dealt with.

Someone may claim that moderating free market, in such a way as to decrease the possibility of a monopoly development or abusive behaviors, might as well be a plan undermining the concept and market’s ability to self-regulate. That might be true, but if we consider the adverse effects of a monopoly, we can conclude that they damage the idea of free markets and free competition actually more than a targeted regulation.

That is why there have been efforts for anti-monopoly legislation, mainly limiting the potential for mergers and acquisitions or the company’s abusive behaviors, but few things have been achieved so far. The major industries, nowadays, are currently under monopolies and the economic interests are too powerful to overcome. Their strength has been mostly unregulated and has been growing steadily to a point that is eventually unstoppable. Therefore, it remains a duty of the states and supervisory authorities to impose some checks and balances to this erosion of free markets that limits consumer rights, free competition and ultimately undermines the system from which it has developed.

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