|
A monopoly is a
business possessing the exclusive ability to supply a certain service or
product, and this exclusivity is what gives it power to charge high prices,
provide inferior services or obtain other benefits at the expense of the
consumer. The desirable alternative to monopolies, contend the majority of
economists, is a competitive economy. Competition amongst similar businesses is
supposed to weaken businesses and induce them to provide fairer deals to
consumers and employees. Capital holders obviously prefer to create and hold on
to monopolies. A monopoly does not have to be expressed only in the power to
sell. A body possessing power in the market as the sole consumer of a certain
product is called a monopsony. A monopsony can force a low price upon its
suppliers. For example, a monopsony in the labor market can fire and hire
workers at will since the workers do not have alternative job offers.
Is it always true that
competition is better than a monopoly? The economic theory being taught at
universities claims yes, but in reality competition does not always provide the
best outcome. In the name of competition, businesses can flood the market with
cheap goods that cause extensive environmental damage and the creation of waste.
Competition can induce businesses to break the law, withhold taxes or impinge
upon workers’ rights. Moreover, private companies can band together as a
cartel, and thus achieve the power of a monopoly by joint efforts. Government
efforts to prevent such banding together, for example through the Israeli
Antitrust Authority, do not always succeed. Additionally, in numerous economic sectors,
size can be advantageous—many businesses act more efficiently when they are
large and centralized. The national train system, for example, will generally
be more efficient than a group of companies running competitive railways.
A government monopoly
is preferable in several instances over a competitive market. A private company
aims to increase its profits as much as possible, while the government has
wider considerations and is subject to greater public scrutiny. The profits
earned by a government monopoly remain in the hands of the government and can
therefore be invested in projects for the public benefit. The government can
determine if it wishes to subsidize a public service or charge a higher price
to create public income. The government can take into account considerations
such as workers’ rights in the company, environmental damage and the need for
income versus the need of consumers to receive a good or service at a low cost.
The government can, with a strong monopoly, prevent capital holders from
entering a sector and creating a private monopoly or cartel, the sole goal of
which is to generate profits.
A state of a complete
monopoly or a completely competitive market is only theoretical. In reality,
the economy is always in an interim state. Each business faces certain competitive
forces, as well as a certain level of monopolistic power. In Israel, an
especially small country, a strong tendency toward monopolies exists. The wave
of privatization sweeping the country in recent years significantly increases
this phenomenon. The result is that Israel has a small group of
powerful capital holders who control the Israeli economy.
One of the solutions in
an economy with powerful monopolies is to create additional monopolies. Against
a large company that exploits its power to negatively impact employee’s wages,
it is possible to establish a strong workers’ union that will fight for their
rights. Against a monopoly that raises prices, it is possible to create a
consumers’ union that will establish a monopsony and can organize a consumer
boycott. Two monopolies in confrontation may balance each other out.
In the labor market
there is a connection between monopolies and minimum wage. When a company is a monopsony
in the labor market, it can hire fewer workers in order to push the salary
downwards. When large segments of the population are unemployed, it can
threaten the workers that if they do not make do with a low salary and few
rights, they will be easily replaced. If a monitored minimum wage exists in the
market, the company cannot use the threat of redundancy to lower the salary
below the minimum wage, and will therefore prefer to employ the most efficient
number of workers (which is higher). The high unemployment rates in Israel are in
the periphery, where companies possess monopsonic power to employ workers. In a
monopsonic labor market, it is possible that raising the minimum wage will
actually lower unemployment.
First published in the “Kol Ha’ir”
newspaper on 6 April 2007.
|
News 
