monopolies

monopolies. Strictly, monopolies exist when there is a single supplier in a market and a monopsony when there is only one buyer. More common is the notion of monopoly power where one actor can exert a strong influence over the way a market functions. Natural monopoly power is often associated with the existence of economies of scale but legal monopolies have been common in the provision of many forms of public goods and services. Adam Smith, in the wealth of Nations, provided a sustained attack on monopolies but thought of them more as multi-firmed industries with statutory protection along the lines of the medieval guilds.

Attitudes towards monopolies have changed over time. Monopolies granted to courtiers by Elizabeth I and James I caused bitter resentment and there were fierce protests in Parliament. Monopolies were also introduced as a means of indirectly controlling supply, e. g. guilds and, recently, professional associations have codes of conduct which remove the need for direct controls. Conferring monopoly power has been a traditional way of stimulating investment—the turnpike system for roads. Legal monopolies may also be created to prevent inefficient duplication of supply. At the international level, monopoly trading power formed a key element in colonial development with singular powers being conferred on bodies such as the East India Company (1600).

Modern concerns about the effect upon consumers have led to state regulation of monopolies—through price controls or profit limits. Mergers which create monopolies are also subjected to scrutiny. The large-scale state ownership of monopolies is a relatively modern phenomenon stemming back to the nationalization programme of the Labour government of 1945–50. More recently (since 1979), following doubts about the economic efficiency of public ownership, there has been a return to regulated private monopolies.

Kenneth Button