Government-granted_monopoly

Government-granted monopoly

In economics, a government-granted monopoly (also called a "de jure monopoly") is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement. As a form of coercive monopoly, government-granted monopoly is contrasted with a non-coercive monopoly or an efficiency monopoly, where there is no competition but it is not forcibly excluded. Amongst forms of coercive monopoly it is distinguished from government monopoly or state monopoly (in which government agencies hold the legally-enforced monopoly rather than private individuals or firms) and from government-sponsored cartels (in which the government forces several independent producers to partially coordinate their decisions through a centralized organization). Advocates for government-granted monopolies often claim that they ensure public control over essential industries; opponents often criticize them as political favors to corporations and as distortions of the free market.

Under mercantilist economic systems, European governments with colonial interests often granted large and extremely lucrative monopolies to companies trading in particular regions, such as the Dutch East India Company. Today, government-granted monopolies may be found in public utility services such as public roads, mail, water supply, and electric power, as well as certain specialized and highly-regulated fields such as education and gambling. In many countries lucrative natural resources industries, especially the petroleum industry, are controlled by government-granted monopolies. Franchisess granted by governments to operate public transit through public roads are another example.

Intellectual property protection

Many commentators have also pointed out that what are sometimes called intellectual property laws—laws granting protections through copyrights, patents, and trademarks—represent government-granted monopolies on the copying and use of particular items of information. It's worth noting, though, that intellectual property restrictions are usually motivated by concerns different from—indeed, opposite to—those that motivate other government-granted monopolies. Whereas other government-granted monopolies are usually motivated by a perceived need for greater public control over the accessibility and quality of essential goods and services, "intellectual property" monopolies are usually motivated by a perceived need for greater private control, by an artist or inventor, over the use and profits from their work. Similarly, whereas most other government-granted monopolies are accompanied with extensive regulations intended to prevent the taking of monopoly profits by the monopolist, "intellectual property" monopolies are usually granted with the express purpose that artists and inventors will reap monopoly profits from their work, giving them a greater incentive to persist in creative work, and preventing low-cost unauthorized copies from driving them out of the market.

However, governments have granted monopolies to forms of copy prevention. In the Digital Millennium Copyright Act, for example, the proprietary Macrovision copy prevention technology is required for analog video recorders. Though other forms of copy prevention aren't prohibited, requiring Macrovision effectively gives it a monopoly and prevents more effective copy prevention methods from being developed.

Criticism

Opponents of government-granted monopoly often point out that such a firm is able to set its pricing and production policies without fear of breeding potential competition. They argue that this causes inefficiencies in the market place, such as unnecessarily high prices to consumers for the good or service being supplied (government-imposed price caps might avert this problem, however, it is still possible that competition would supply the good or service at a lower price). One historical example of this is the government-granted monopoly in steamboat traffic operated by Robert Fulton. The New York legislature granted Fulton the privilege to be the sole provider of all steamboat traffic for thirty years. Competition was forbidden by law. Thomas Gibbons, a steamboat entrepreneur, hired Cornelius Vanderbilt to ferry passengers for a cheaper fare in defiance of the law in an attempt to compete with Fulton for about six months. In 1824, in Gibbons v. Ogden, the Supreme Court struck down Fulton's government-granted monopoly ruling that states cannot legally regulate interstate commerce. Steamboat fares almost immediately dropped from seven to three dollars after the decision and traffic increased dramatically. Fulton was unable to successfully compete with the low fares offered by Gibbons and Vanderbilt, which resulted in his bankruptcy. (The Myth of the Robber Barrons, by Burton W. Folsom Jr.)

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