government-granted monopolies

(noun)

In economics, 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. Also called a "de jure monopoly. "

Related Terms

Examples of government-granted monopolies in the following topics:

  • Government Action

    • There are two types of government-initiated monopoly: a government monopoly and a government-granted monopoly.
    • There are instances in which the government initiates monopolies, creating a government-granted monopoly or a government monopoly.
    • Government-granted monopolies often closely resemble government monopolies in many respects, but the two are distinguished by the decision-making structure of the monopolist.
    • Intellectual property rights such as copyright and patents are government-granted monopolies.
    • Additionally, the Dutch East India Company provides a historical example of a government-granted monopoly.

  • Legal Barriers

    • The government creates legal barriers through patents, copyrights, and granting exclusive rights to companies.
    • In some cases, the government will grant a person or firm exclusive rights to produce a good or service, enabling them to monopolize the market for this good or service.
    • It is also possible that there is a monopoly because the government has granted a single company exclusive or special rights.
    • The water utility company, for example, is a monopoly in your area because it is the only organization granted the right to provide water.
    • Copyright is an example of a temporary legal monopoly granted to creators of original creative works.

  • Investing in Research and Development

    • Patents are temporary monopolies granted to inventors by the government, in exchange for public disclosure of how the invention works.
    • For example, NASA is a government agency that also does research.
    • Such financing often takes the form of grants given to researchers in companies or organizations by the government.
    • The grants are given to projects that are valuable either to the government or to society as a whole.
    • Such grants can be viewed through the lens of market failure: the open market is not financing a socially or government-desirable project, so the government steps in to correct the failure.

  • Monopoly

    • Monopolies rarely occur in a pure form.
    • When the term "monopoly" is used it is usually referring to a degree of monopoly or market power.
    • ALCOA's monopoly began when the government gave them a patent on a low cost method of reducing bauxite to aluminum.
    • In fact, the British colonies that became the United States and Canada were the result or grants from the British government.
    • Hudson Bay Company and the East India Companies were firms that were granted rights to operate in specific areas.

  • Other Barriers to Entry

    • Monopolies exhibit decreasing costs as output increases.
    • The granting of permits or professional licenses can also favor certain firms, while setting standards that are difficult for new firms to meet.
    • For example, in many countries, the postal system is run by the government with competition forbidden by law in some or all services.
    • Government monopolies in public utilities, telecommunications systems, and railroads have also historically been common.
    • In other instances, the government may be an invested partner in a monopoly rather than a sole owner.

  • The Transformation of Law

    • Marshall was a federalist and opposed Jeffersonian Democrats, who desired stronger state governments and a weak federal government.
    • Marshall also defended the legal rights of corporations and granted corporations a level of protection for their property equal to what individuals were entitled.
    • This decision also shielded corporations from intrusive state governments.
    • Ogden in 1824, in which Marshall overturned a monopoly granted by the New York state legislature to steamships operating between New York and New Jersey.
    • The immediate impact of this historic decision was to end many state-granted monopolies.

  • Regulation of Natural Monopoly

    • Monopolies on the whole are governed under antitrust laws, both on a national level in most countries and on an international level via institutions such as the World Trade Organization (WTO).
    • In short, the government can provide financial support via subsidies to new entrants to ensure the competitive environment is more equitable.
    • In extreme circumstances it is also a viable option for governments to break up monopolies through the legal processes.
    • AT&T is a classic example of a government-backed monopoly in the middle of the 20th century, as the fixed investment of land lines for phones at that time was substantial.
    • It was not practical to foster competition as a result, and the government recognized the necessity for a monopoly (until 1984, when AT&T was divested).

  • Mixed Economies

    • While there is no single definition of a mixed economy, it generally involves a degree of economic freedom mixed with government regulation of markets.
    • Different ways a government directly intervenes in an economy include:
    • While mixed economies vary based on their degree of government intervention, some elements are consistent.
    • However, the government in mixed economies generally subsidizes public goods, such as roads and libraries, and provide welfare services such as social security.
    • These governments also regulate labor and protect intellectual property.

  • Federal Grants and National Efforts to Influence the States

    • In the United States, federal grants are economic aid issued by the federal government out of the general federal revenue.
    • Federal grants are defined and governed by the Federal Grant and Cooperative Agreement Act of 1977.
    • Block grants—large grants provided by the federal government to state or local governments for use in a general purpose.
    • Project grants—grants given by the government to fund research projects, such as medical research.
    • For project grants, states compete for funding; the federal government selects specific projects based on merit.

  • Early U.S. Supreme Court Decisions

    • Chief Justice John Marshall believed that the case established the principles that the Constitution grants Congress implied powers for implementing the Constitution's expressed powers, in order to create a functional national government and that state action may not impede valid constitutional exercises of power by the federal government.
    • Only the Orleans Territory accepted and awarded them a monopoly in the lower Mississippi.
    • They ended up in the New York Court of Errors, which granted a permanent injunction against Gibbons in 1820.
    • Gibbons appealed to the Supreme Court, arguing that the monopoly conflicted with federal law.
    • Chief Justice Marshall's ruling determined that a congressional power to regulate navigation is granted.