A monopoly is a market structure in which there is a single supplier of a good or service. A firm that is the single supplier of a good or service for which there are no close substitutes is also called a monopoly or a monopolist. For example, if only one company produced and sold computers the company would have a monopoly on computers. When only one firm provides a good or service,there is no competition to force the firm to produce the highest quality good or service or to sell it at the lowest possible cost. When a true monopoly exists, consumers cannot even buy substitute goods or services because nobody sells them. Certainly, businesses have the potential to profit greatly if they can become monopolies. However, many economists do not believe that monopolies are good for the economy, and the U.S. government has outlawed monopolies. In this lesson, you will play the role of a newspaper editorialist. You will consider whether or not governments should allow monopolies to exist. You will also think about how the Internet has influenced the ability of firms to set themselves up as monopolies.
The publisher of your local newspaper has invited you to serve as the newspaper editor. As a newspaper editorialist, you are expected to present your opinions on a variety of different issues. For the next issue of your paper, you have decided to present your opinions on monopolies. Should monopolies be illegal in the U.S. economy?
Your teacher wants to buy a pen from a student in your class. You want your teacher to buy the pen from you. What type of a pen will you try to sell your teacher? How much will you charge your teacher for this pen? How will the fact that other students in your class also want your teacher to buy their pen influence the price that you charge and the quality of the pen that you make available?
Now, imagine that only one student in the class has a pen to sell to the teacher. How do you think this situation would affect the price that the student could charge? Why? How would this situation affect the quality of pen that the student tried to sell? Why?
A firm, or company, has a monopoly when it is the only firm to sell the product or service. Therefore a student who controls all the pens in a class has a monopoly in the classroom economy. Do you think that it is fair for monopolies to exist in economies? Why/why not?
One way to think about values and ideas that are important in the United States is to consider the laws adopted by the U.S. government. For example, freedom of speech is an important value in the United States. Therefore there are numerous laws, in addition to the Bill of Rights, that protect an individual's freedom of speech. In order to learn more about the view that the U.S. government takes of monopolies, complete the following worksheet Standard Oil Company and the Sherman Anti-Trust Act .
Though the U.S. government has prohibited the establishment of monopolies, many firms would love to be monopolies. Why do you think that business firms would want to be monopolies? What is the objective of business firms? How would being a monopoly help business firms achieve this objective? In what ways might firms try to become monopolies?
- Pretend that you are an editorialist, and write an editorial considering whether or not you believe that monopolies should be illegal.
Once you have completed your editorial, please trade editorials with two classmates. Write responses to these editorials using the attached form .
Remember that the U.S. government first outlawed monopolies in the 1890s. Imagine how confused people from the 1890s would be if they came back to life today. They would not even recognize washing machines or dishwashers, let alone the Internet, blogs, and podcasts. How do you think that technology has influenced the difficulties that firms would encounter if they tried to establish themselves as monopolies today? Has technology made it harder or easier to develop a monopoly?
In this lesson, you have considered the role that monopolies play in economies. You have learned that monopolies are illegal in the United States. You have considered why firms would want to be monopolies. You have also stated and explained your views about monopolies in an editorial, and you have commented on several classmates' editorials. Finally, you have considered how technology today can influence the ability of firms to establish themselves as monopolies.
In groups of two or three, you should develop radio interviews considering the nature of monopolies today. Your radio interviews should respond to the following questions:
- What is a monopoly?
- How has today's the technological infrastructure influenced the establishment of monopolies?
- Do you think that there has to be a law today outlawing monopolies? Why or why not?
Your task here is to develop a strategy for creating a monopoly. And, for the monopoly you plan, you must also think about the effect it would be likely to have on the goods or services made available to cosumers. To consider this question in more detail, please complete the worksheet entitled Creating a Monopoly .