Monopoly

Market structure is determined by following factors:

• Barriers to entry: Competition within the market will determine the firm's future profits, and future profits will determine the entry and exit barriers to the market. Estimating entry, exit and profits are decided by three factors: the intensity of competition in short-term prices, the magnitude of sunk costs of entry faced by potential entrants, and the magnitude of fixed costs faced by incumbents.[5]
• The number of companies in the market: If the number of firms in the market increases, the value of firms remaining and entering the market will decrease, leading to a high probability of exit and a reduced likelihood of entry.
• Product substitutability: Product substitution is the phenomenon where customers can choose one over another.This is the main way to distinguish a monopolistic competition market from a perfect competition market.

In economics, the idea of monopolies is important in the study of management structures, which directly concerns normative aspects of economic competition, and provides the basis for topics such as industrial organization and economics of regulation. There are four basic types of market structures in traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces and sells a given product or service. If there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a "pure monopoly". Sometimes, there are many sellers in an industry or there exist many close substitutes for the goods being produced, but nevertheless companies retain some market power. This is termed "monopolistic competition", whereas in an oligopoly, the companies interact strategically.

In general, the main results from this theory compare the price-fixing methods across market structures, analyze the effect of a certain structure on welfare, and vary technological or demand assumptions in order to assess the consequences for an abstract model of society. Most economic textbooks follow the practice of carefully explaining the "perfect competition" model, mainly because this helps to understand departures from it (the so-called "imperfect competition" models).

The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis. In a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, allowing for more flexibility in the identification of substitute goods.

A monopoly has at least one of these five characteristics:

• Profit maximizer: molopolists will choose the price or output to maximase profits at where MC=MR.This output will be somewhere over the price range, where demand is price elastic. If the total revenue is higher than total costs, the monopolists will make Abnormal profits.
• Price maker: Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm.
• High barriers to entry: Other sellers are unable to enter the market of the monopoly.
• Single seller: In a monopoly, there is one seller of the good, who produces all the output.[6] Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.
• Price discrimination: A monopolist can change the price or quantity of the product. They sell higher quantities at a lower price in a very elastic market, and sell lower quantities at a higher price in a less elastic market.

Monopolies derive their market power from barriers to entry – circumstances that prevent or greatly impede a potential competitor's ability to compete in a market. There are three major types of barriers to entry: economic, legal and deliberate.[7]

• Elasticity of demand: In a complete monopolistic market, the demand curve for the product is the market demand curve. There is only one firm within the industry. The monopolist is the sole seller, and its demand is the demand of the entire market. A monopolist is the price setter, but it is also limited by the law of market demand. If he/she sets a high price, the sales volume will inevitably decline, if expand the sales volume, the price must be lowered, which means that the demand and price in the monopoly market move in opposite directions. Therefore, the demand curve faced by a monopoly is a downward sloping curve, or a negative slope. Since monopolists control the supply of the entire industry, they also control the price of the entire industry and become price setters. A monopolistic firm can have two business decisions: sell less output at a higher price, or sell more output at a lower price. There are no close substitutes for the products of a monopolistic firm. Otherwise, other firms can produce substitutes to replace the monopoly firm's products, and a monopolistic firm cannot become the only supplier in the market. So consumers have no other choice.
• Economic barriers: Economic barriers include economies of scale, capital requirements, cost advantages and technological superiority.[8]
• Economies of scale: Decreasing unit costs for larger volumes of production.[9] Decreasing costs coupled with large initial costs, If for example the industry is large enough to support one company of minimum efficient scale then other companies entering the industry will operate at a size that is less than MES, and so cannot produce at an average cost that is competitive with the dominant company. And if the long-term average cost of the dominant company is constantly decreasing, then that company will continue to have the least cost method to provide a good or service.[10]
• Capital requirements: Production processes that require large investments of capital, perhaps in the form of large research and development costs or substantial sunk costs, limit the number of companies in an industry:[11] this is an example of economies of scale.
• Technological superiority: A monopoly may be better able to acquire, integrate and use the best possible technology in producing its goods while entrants either do not have the expertise or are unable to meet the large fixed costs (see above) needed for the most efficient technology.[9] Thus one large company can often produce goods cheaper than several small companies.[12]
• No substitute goods: A monopoly sells a good for which there is no close substitute. The absence of substitutes makes the demand for that good relatively inelastic, enabling monopolies to extract positive profits.
• Control of natural resources: A prime source of monopoly power is the control of resources (such as raw materials) that are critical to the production of a final good.
• Network externalities: The use of a product by a person can affect the value of that product to other people. This is the network effect. There is a direct relationship between the proportion of people using a product and the demand for that product. In other words, the more people who are using a product, the greater the probability that another individual will start to use the product. This reflects fads, fashion trends,[13] social networks etc. It also can play a crucial role in the development or acquisition of market power. The most famous current example is the market dominance of the Microsoft office suite and operating system in personal computers.
• Legal barriers: Legal rights can provide opportunity to monopolise the market in a good. Intellectual property rights, including patents and copyrights, give a monopolist exclusive control of the production and selling of certain goods. Property rights may give a company exclusive control of the materials necessary to produce a good.
• Advertising: Advertising is most important to sell the product because of the single user, they have to do it their own.unclear or ambiguous text,. Advertising and brand names with a high degree of consumer loyalty may prove a difficult obstacle to overcome.
• Manipulation: A company wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. Such actions include collusion, lobbying governmental authorities, and force (see anti-competitive practices).
• First-mover advantage: In some industries such as electronics, the pace of product innovation is so rapid that the existing firms will be working on the next generation of products whilst launching the current ranges. New entrants are destined to fail unless they have original ideas or can exploit a new market segment.
• Monopolistic price: It may be possible for existing firms to ride the existence of abnormal profit by what is called entry limit pricing. This involves deliberately setting a low price and temporarily abandoning profit maximisation in order to force new entrants out of the market.

In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. High liquidation costs are a primary barrier to exiting.[14] Market exit and shutdown are sometimes separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price falls below minimum average variable costs.

This 1879 anti-monopoly cartoon depicts powerful railroad barons controlling the entire rail system.

While monopoly and perfect competition mark the extremes of market structures[15] there is some similarity. The cost functions are the same.[16] Both monopolies and perfectly competitive (PC) companies minimize cost and maximize profit. The shutdown decisions are the same. Both are assumed to have perfectly competitive factors markets. There are distinctions, some of the most important distinctions are as follows:

• Marginal revenue and price: In a perfectly competitive market, price equals marginal cost. In a monopolistic market, however, price is set above marginal cost. The price equal marginal revenue in this case.[17]
• Product differentiation: There is no product differentiation in a perfectly competitive market. Every product is perfectly homogeneous and a perfect substitute for any other. With a monopoly, there is great to absolute product differentiation in the sense that there is no available substitute for a monopolized good. The monopolist is the sole supplier of the good in question.[18] A customer either buys from the monopolizing entity on its terms or does without.
• Number of competitors: PC markets are populated by a large number of buyers and sellers. A monopoly involves a single seller.[18]
• Barriers to entry: Barriers to entry are factors and circumstances that prevent entry into market by would-be competitors and limit new companies from operating and expanding within the market. PC markets have free entry and exit. There are no barriers to entry, or exit competition. Monopolies have relatively high barriers to entry. The barriers must be strong enough to prevent or discourage any potential competitor from entering the market
• Elasticity of demand: The price elasticity of demand is the percentage change of demand caused by a one percent change of relative price. A successful monopoly would have a relatively inelastic demand curve. A low coefficient of elasticity is indicative of effective barriers to entry. A PC company has a perfectly elastic demand curve. The coefficient of elasticity for a perfectly competitive demand curve is infinite.
• Excess profits: Excess or positive profits are profit more than the normal expected return on investment. A PC company can make excess profits in the short term but excess profits attract competitors, which can enter the market freely and decrease prices, eventually reducing excess profits to zero.[19] A monopoly can preserve excess profits because barriers to entry prevent competitors from entering the market.[20]
• Profit maximization: A PC company maximizes profits by producing such that price equals marginal costs. A monopoly maximises profits by producing where marginal revenue equals marginal costs.[21] The rules are not equivalent. The demand curve for a PC company is perfectly elastic – flat. The demand curve is identical to the average revenue curve and the price line. Since the average revenue curve is constant the marginal revenue curve is also constant and equals the demand curve, Average revenue is the same as price (AR = TR/Q = P x Q/Q = P). Thus the price line is also identical to the demand curve. In sum, D = AR = MR = P.
• P-Max quantity, price and profit: If a monopolist obtains control of a formerly perfectly competitive industry, the monopolist would increase prices, reduce production, incur deadweight loss, and realise positive economic profits.[22]
• Supply curve: in a perfectly competitive market there is a well defined supply function with a one-to-one relationship between price and quantity supplied.[23] In a monopolistic market no such supply relationship exists. A monopolist cannot trace a short-term supply curve because for a given price there is not a unique quantity supplied. As Pindyck and Rubenfeld note, a change in demand "can lead to changes in prices with no change in output, changes in output with no change in price or both".[24] Monopolies produce where marginal revenue equals marginal costs. For a specific demand curve the supply "curve" would be the price-quantity combination at the point where marginal revenue equals marginal cost. If the demand curve shifted the marginal revenue curve would shift as well and a new equilibrium and supply "point" would be established. The locus of these points would not be a supply curve in any conventional sense.[25][26]

The most significant distinction between a PC company and a monopoly is that the monopoly has a downward-sloping demand curve rather than the "perceived" perfectly elastic curve of the PC company.[27] Practically all the variations mentioned above relate to this fact. If there is a downward-sloping demand curve then by necessity there is a distinct marginal revenue curve. The implications of this fact are best made manifest with a linear demand curve. Assume that the inverse demand curve is of the form x = a − by. Then the total revenue curve is TR = ay − by2 and the marginal revenue curve is thus MR = a − 2by. From this several things are evident. First, the marginal revenue curve has the same y intercept as the inverse demand curve. Second, the slope of the marginal revenue curve is twice that of the inverse demand curve. Third, the x intercept of the marginal revenue curve is half that of the inverse demand curve. What is not quite so evident is that the marginal revenue curve is below the inverse demand curve at all points.[27] Since all companies maximise profits by equating MR and MC it must be the case that at the profit-maximizing quantity MR and MC are less than price, which further implies that a monopoly produces less quantity at a higher price than if the market were perfectly competitive.

The fact that a monopoly has a downward-sloping demand curve means that the relationship between total revenue and output for a monopoly is much different than that of competitive companies.[28] Total revenue equals price times quantity. A competitive company has a perfectly elastic demand curve meaning that total revenue is proportional to output.[28] Thus the total revenue curve for a competitive company is a ray with a slope equal to the market price.[28] A competitive company can sell all the output it desires at the market price. For a monopoly to increase sales it must reduce price. Thus the total revenue curve for a monopoly is a parabola that begins at the origin and reaches a maximum value then continuously decreases until total revenue is again zero.[29] Total revenue has its maximum value when the slope of the total revenue function is zero. The slope of the total revenue function is marginal revenue. So the revenue maximizing quantity and price occur when MR = 0. For example, assume that the monopoly's demand function is P = 50 − 2Q. The total revenue function would be TR = 50Q − 2Q² and marginal revenue would be 50 − 4Q. Setting marginal revenue equal to zero we have

${\displaystyle 50-4Q=0}$

${\displaystyle -4Q=-50}$

${\displaystyle Q=12.5}$

So the revenue maximizing quantity for the monopoly is 12.5 units and the revenue maximizing price is 25.

A company with a monopoly does not experience price pressure from competitors, although it may experience pricing pressure from potential competition. If a company increases prices too much, then others may enter the market if they are able to provide the same good, or a substitute, at a lesser price.[30] The idea that monopolies in markets with easy entry need not be regulated against is known as the "revolution in monopoly theory".[31]

A monopolist can extract only one premium, and getting into complementary markets does not pay. That is, the total profits a monopolist could earn if it sought to leverage its monopoly in one market by monopolizing a complementary market are equal to the extra profits it could earn anyway by charging more for the monopoly product itself. However, the one monopoly profit theorem is not true if customers in the monopoly good are stranded or poorly informed, or if the tied good has high fixed costs.

A pure monopoly has the same economic rationality of perfectly competitive companies, i.e. to optimise a profit function given some constraints. By the assumptions of increasing marginal costs, exogenous inputs' prices, and control concentrated on a single agent or entrepreneur, the optimal decision is to equate the marginal cost and marginal revenue of production. Nonetheless, a pure monopoly can – unlike a competitive company – alter the market price for its own convenience: a decrease of production results in a higher price. In the economics' jargon, it is said that pure monopolies have "a downward-sloping demand". An important consequence of such behaviour is that typically a monopoly selects a higher price and lesser quantity of output than a price-taking company; again, less is available at a higher price.[32]

A monopoly chooses that price that maximizes the difference between total revenue and total cost. The basic markup rule (as measured by the Lerner index) can be expressed as ${\displaystyle {\frac {P-MC}{P}}={\frac {-1}{E_{d}}}}$, where ${\displaystyle E_{d}}$ is the price elasticity of demand the firm faces.[33] The markup rules indicate that the ratio between profit margin and the price is inversely proportional to the price elasticity of demand.[33] The implication of the rule is that the more elastic the demand for the product the less pricing power the monopoly has.

Price discrimination allows a monopolist to increase its profit by charging higher prices for identical goods to those who are willing or able to pay more. For example, most economic textbooks cost more in the United States than in developing countries like Ethiopia. In this case, the publisher is using its government-granted copyright monopoly to price discriminate between the generally wealthier American economics students and the generally poorer Ethiopian economics students. Similarly, most patented medications cost more in the U.S. than in other countries with a (presumed) poorer customer base. Typically, a high general price is listed, and various market segments get varying discounts. This is an example of framing to make the process of charging some people higher prices more socially acceptable. Perfect price discrimination would allow the monopolist to charge each customer the exact maximum amount they would be willing to pay. This would allow the monopolist to extract all the consumer surplus of the market. A domestic example would be the cost of airplane flights in relation to their takeoff time; the closer they are to flight, the higher the plane tickets will cost, discriminating against late planners and often business flyers. While such perfect price discrimination is a theoretical construct, advances in information technology and micromarketing may bring it closer to the realm of possibility.

Partial price discrimination can cause some customers who are inappropriately pooled with high price customers to be excluded from the market. For example, a poor student in the U.S. might be excluded from purchasing an economics textbook at the U.S. price, which the student may have been able to purchase at the Ethiopian price. Similarly, a wealthy student in Ethiopia may be able to or willing to buy at the U.S. price, though naturally would hide such a fact from the monopolist so as to pay the reduced third world price. These are deadweight losses and decrease a monopolist's profits. Deadweight loss is considered detrimental to society and market participation. As such, monopolists have substantial economic interest in improving their market information and market segmenting.[41]

There is important information for one to remember when considering the monopoly model diagram (and its associated conclusions) displayed here. The result that monopoly prices are higher, and production output lesser, than a competitive company follow from a requirement that the monopoly not charge different prices for different customers. That is, the monopoly is restricted from engaging in price discrimination (this is termed first degree price discrimination, such that all customers are charged the same amount). If the monopoly were permitted to charge individualised prices (this is termed third degree price discrimination), the quantity produced, and the price charged to the marginal customer, would be identical to that of a competitive company, thus eliminating the deadweight loss; however, all gains from trade (social welfare) would accrue to the monopolist and none to the consumer. In essence, every consumer would be indifferent between going completely without the product or service and being able to purchase it from the monopolist.

As long as the price elasticity of demand for most customers is less than one in absolute value, it is advantageous for a company to increase its prices: it receives more money for fewer goods. With a price increase, price elasticity tends to increase, and in the optimum case above it will be greater than one for most customers.

A company maximizes profit by selling where marginal revenue equals marginal cost. A company that does not engage in price discrimination will charge the profit maximizing price, P*, to all its customers. In such circumstances there are customers who would be willing to pay a higher price than P* and those who will not pay P* but would buy at a lower price. A price discrimination strategy is to charge less price sensitive buyers a higher price and the more price sensitive buyers a lower price.[42] Thus additional revenue is generated from two sources. The basic problem is to identify customers by their willingness to pay.

The purpose of price discrimination is to transfer consumer surplus to the producer.[43] Consumer surplus is the difference between the value of a good to a consumer and the price the consumer must pay in the market to purchase it.[44] Price discrimination is not limited to monopolies.

Market power is a company's ability to increase prices without losing all its customers. Any company that has market power can engage in price discrimination. Perfect competition is the only market form in which price discrimination would be impossible (a perfectly competitive company has a perfectly elastic demand curve and has no market power).[43][45][46][47]

There are three forms of price discrimination. First degree price discrimination charges each consumer the maximum price the consumer is willing to pay. Second degree price discrimination involves quantity discounts. Third degree price discrimination involves grouping consumers according to willingness to pay as measured by their price elasticities of demand and charging each group a different price. Third degree price discrimination is the most prevalent type.[48]

There are three conditions that must be present for a company to engage in successful price discrimination. First, the company must have market power.[49] Second, the company must be able to sort customers according to their willingness to pay for the good.[50] Third, the firm must be able to prevent resell.

A company must have some degree of market power to practice price discrimination. Without market power a company cannot charge more than the market price.[51] Any market structure characterized by a downward sloping demand curve has market power – monopoly, monopolistic competition and oligopoly.[49] The only market structure that has no market power is perfect competition.[51]

A company wishing to practice price discrimination must be able to prevent middlemen or brokers from acquiring the consumer surplus for themselves. The company accomplishes this by preventing or limiting resale. Many methods are used to prevent resale. For instance, persons are required to show photographic identification and a boarding pass before boarding an airplane. Most travelers assume that this practice is strictly a matter of security. However, a primary purpose in requesting photographic identification is to confirm that the ticket purchaser is the person about to board the airplane and not someone who has repurchased the ticket from a discount buyer.

The inability to prevent resale is the largest obstacle to successful price discrimination.[45] Companies have however developed numerous methods to prevent resale. For example, universities require that students show identification before entering sporting events. Governments may make it illegal to resell tickets or products. In Boston, Red Sox baseball tickets can only be resold legally to the team.

The three basic forms of price discrimination are first, second and third degree price discrimination. In first degree price discrimination the company charges the maximum price each customer is willing to pay. The maximum price a consumer is willing to pay for a unit of the good is the reservation price. Thus for each unit the seller tries to set the price equal to the consumer's reservation price.[52] Direct information about a consumer's willingness to pay is rarely available. Sellers tend to rely on secondary information such as where a person lives (postal codes); for example, catalog retailers can use mail high-priced catalogs to high-income postal codes.[53][54] First degree price discrimination most frequently occurs in regard to professional services or in transactions involving direct buyer-seller negotiations. For example, an accountant who has prepared a consumer's tax return has information that can be used to charge customers based on an estimate of their ability to pay.[55]

In second degree price discrimination or quantity discrimination customers are charged different prices based on how much they buy. There is a single price schedule for all consumers but the prices vary depending on the quantity of the good bought.[56] The theory of second degree price discrimination is a consumer is willing to buy only a certain quantity of a good at a given price. Companies know that consumer's willingness to buy decreases as more units are purchased. The task for the seller is to identify these price points and to reduce the price once one is reached in the hope that a reduced price will trigger additional purchases from the consumer. For example, sell in unit blocks rather than individual units.

In third degree price discrimination or multi-market price discrimination[57] the seller divides the consumers into different groups according to their willingness to pay as measured by their price elasticity of demand. Each group of consumers effectively becomes a separate market with its own demand curve and marginal revenue curve.[46] The firm then attempts to maximize profits in each segment by equating MR and MC,[49][58][59] Generally the company charges a higher price to the group with a more price inelastic demand and a relatively lesser price to the group with a more elastic demand.[60] Examples of third degree price discrimination abound. Airlines charge higher prices to business travelers than to vacation travelers. The reasoning is that the demand curve for a vacation traveler is relatively elastic while the demand curve for a business traveler is relatively inelastic. Any determinant of price elasticity of demand can be used to segment markets. For example, seniors have a more elastic demand for movies than do young adults because they generally have more free time. Thus theaters will offer discount tickets to seniors.[61]

Surpluses and deadweight loss created by monopoly price setting

According to the standard model, in which a monopolist sets a single price for all consumers, the monopolist will sell a lesser quantity of goods at a higher price than would companies by perfect competition. Because the monopolist ultimately forgoes transactions with consumers who value the product or service more than its price, monopoly pricing creates a deadweight loss referring to potential gains that went neither to the monopolist nor to consumers. Deadweight loss is the cost to society because the market isn't in equilibrium, it is inefficient. Given the presence of this deadweight loss, the combined surplus (or wealth) for the monopolist and consumers is necessarily less than the total surplus obtained by consumers by perfect competition. Where efficiency is defined by the total gains from trade, the monopoly setting is less efficient than perfect competition.[66]

It is often argued that monopolies tend to become less efficient and less innovative over time, becoming "complacent", because they do not have to be efficient or innovative to compete in the marketplace. Sometimes this very loss of psychological efficiency can increase a potential competitor's value enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives. The theory of contestable markets argues that in some circumstances (private) monopolies are forced to behave as if there were competition because of the risk of losing their monopoly to new entrants. This is likely to happen when a market's barriers to entry are low. It might also be because of the availability in the longer term of substitutes in other markets. For example, a canal monopoly, while worth a great deal during the late 18th century United Kingdom, was worth much less during the late 19th century because of the introduction of railways as a substitute.

Contrary to common misconception, monopolists do not try to sell items for the highest possible price, nor do they try to maximize profit per unit, but rather they try to maximize total profit.[67]

A monopolist should shut down when price is less than average variable cost for every output level[75] – in other words where the demand curve is entirely below the average variable cost curve.[75] Under these circumstances at the profit maximum level of output (MR = MC) average revenue would be less than average variable costs and the monopolists would be better off shutting down in the short term.[75]

In an unregulated market, monopolies can potentially be ended by new competition, breakaway businesses, or consumers seeking alternatives. In a regulated market, a government will often either regulate the monopoly, convert it into a publicly owned monopoly environment, or forcibly fragment it (see Antitrust law and trust busting). Public utilities, often being naturally efficient with only one operator and therefore less susceptible to efficient breakup, are often strongly regulated or publicly owned. American Telephone & Telegraph (AT&T) and Standard Oil are often cited as examples of the breakup of a private monopoly by government. The Bell System, later AT&T, was protected from competition first by the Kingsbury Commitment, and later by a series of agreements between AT&T and the Federal Government. In 1984, decades after having been granted monopoly power by force of law, AT&T was broken up into various components, MCI, Sprint, who were able to compete effectively in the long-distance phone market. These breakups are due to the presence of deadweight loss and inefficiency in a monopolistic market, causing the Government to intervene on behalf of consumers and society in order to incite competition. While the sentiment among regulators and judges has generally recommended that breakups are not as remedies for antitrust enforcement, recent scholarship has found that this hostility to breakups by administrators is largely unwarranted.[76]^: 1 In fact, some scholars have argued breakups, even if incorrectly targeted, could arguably still encourage collaboration, innovation, and efficiency.[76]^: 49

A 1902 anti-monopoly cartoon depicts the challenges that monopolies may create for workers

The law regulating dominance in the European Union is governed by Article 102 of the Treaty on the Functioning of the European Union which aims at enhancing the consumer's welfare and also the efficiency of allocation of resources by protecting competition on the downstream market.[77] The existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share company's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power a monopoly may confer, for instance through exclusionary practices (i.e. pricing high just because it is the only one around.) It may also be noted that it is illegal to try to obtain a monopoly, by practices of buying out the competition, or equal practices. If one occurs naturally, such as a competitor going out of business, or lack of competition, it is not illegal until such time as the monopoly holder abuses the power.

American economist Milton Friedman believed that laws against monopolies cause more harm than good, but unnecessary monopolies should be countered by removing tariffs and other regulation that upholds monopolies.

A monopoly can seldom be established within a country without overt and covert government assistance in the form of a tariff or some other device. It is close to impossible to do so on a world scale. The De Beers diamond monopoly is the only one we know of that appears to have succeeded (and even De Beers are protected by various laws against so called "illicit" diamond trade). – In a world of free trade, international cartels would disappear even more quickly.

— Milton Friedman, Free to Choose, p. 53–54

However, economist Steve H. Hanke believes that although private monopolies are according to him more efficient than public ones, often by a factor of two, sometimes private natural monopolies, such as local water distribution, should be regulated (not prohibited) by, e.g., price auctions.[112]

Thomas DiLorenzo believes, however, that during the early days of utility companies where there was little regulation, there were no natural monopolies and there was competition.[113]

Baten, Bianchi and Moser produced research, arguing that monopolies which are protected by patent laws may have adverse effects on the creation of innovation in an economy. They argue that under certain circumstances, compulsory licensing – which allows governments to license patents without the consent of patent-owners – may be effective in promoting invention by increasing the threat of competition in fields with low pre-existing levels of competition.[114]

• Evans, Harold, ed. (2004). They Made America: From the Steam Engine to the Search Engine: Two Centuries of Innovators. Little, Brown and Company. pp. 496. ISBN 0-316-27766-5.