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What are the arguments in favour of anti-monopoly legislation and under what conditions might monopolies be allowed to exist?

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Introduction

Drakakakis Emmanouil Spring Term 2003 Department of Management Economics Essay #2 1. What are the arguments in favour of anti-monopoly legislation and under what conditions might monopolies be allowed to exist? Before discussing the arguments in favour of anti-monopoly legislation and the conditions that a monopoly would be allowed to exist it is important to define monopoly and its market structure. It would be easy to define monopoly by considering the existance of only one firm in a certain industry. but the definition of industry is not always that specific. For example, BMW might have a monopoly in a specific type and design of a car but it certainly does not have a monopoly in the whole car industry area. Or 3M might hold a patent certificate and certainly a great slice of the Post-It notes but that does not mean that the consumer cannot access stick-on notes almost identical to the post-it's (and maybe in a smaller price). This is a vague definition of monopoly but a firm can be more certain about its power of monopoly when assesing the quantity and closeness of alternative products supplied by other companies. For example, electric supply in Greece is provided by only one company and until now its rivals, that would be solar, wind, gas and alternative forms of energy hardly can compare with it at the moment. ...read more.

Middle

(d) Owing key factors of production and/or distribution outlets. an embargo of a key ingredient of a drug to other companies who want to build it or owning the means of access to the customer (outlets) has obvious effects. (e) Legal protection. Patents, tariffs and other charges concerning the product discouraging future competitors. (f) Mergers and takeovers of all future competitors. (g) Agressive economic tactics can be of use as the monopolist firm has advantage over its new competitors to lose for a while but in general maintain its reign in the area ( this can apply to intimidation of legal or illegal form). After this definition of monopoly and its conditions of existance, the arguments in favour of anti-monopoly legislation can be discussed with greater ease. The main disadvantage of monopoly would be the potential harming of the public interest. To explain it in a broad way we can imagine a company selling a product used frequently and massively by the public taking advantage of it and create a network effect. That is, build a network of products created only by this company that are compatible rendering all other useless and pricing them as high as the company wants to. The landmark legal case concerning such an abuse is the case of US Justice Department against Microsoft. ...read more.

Conclusion

Article 85 of the Treaty of Rome covers joint decisions, agreements between firms and concerted practices that are aimed to the elimination of competition. Article 86 is concerned with the abuse of market power and 'agressive' monopolistic behaviour adopted by firms. Such practises can be banned according to this Article and firms can be fined. In the UK currently there is a restrictive practices policy which under Chapter I prohibition of the 1998 Competition Act, any agreement or concerted practice that has the object of preventing, restricting or distorting competition is illegal. Also, currently under chapter II prohibition of the 1998 Competition Act it is illegal for a dominant firm to exercise its market power in such a way as to reduce competition. The 1998 Act does not cover in a specific way mergers, they are covered by the 1973 Fair Trading Act, but in a broad manner even though not restricting mergers so as to control a firms monopoly power, by toughening its policy towards the abuse of this power it prevents excertion of monopoly power to the customer. Finally, one can say that all measures and restrictive policies are not foolproof but they surely can give the consumer a sense of security and the firms an initiative for investment, development and enhancement of services or products provided. 40% grade ...read more.

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