Are Monopolies Always Bad?

Monopolies over a particular commodity, market or aspect of production are considered good or economically advisable in cases where free-market competition would be economically inefficient, the price to consumers should be regulated, or high risk and high entry costs inhibit initial investment in a necessary sector. For example, a government may sanction or take partial ownership of a single supplier for a commodity in order to keep costs to consumers to a necessary minimum. Taking such actions is in the public interest if the good in question is relatively inelastic or necessary, that is, without substitutes. This is known as a legal monopoly or, a natural monopoly, where a single corporation can most efficiently carry the supply.

Natural Monopolies

Natural monopolies are often found in the market for public utilities, relatively high-cost sectors that deter capital investment. The government may then support the total market share of a single corporation in providing water, electricity or natural gas to its public. In doing so, both government regulation of the price of a necessary good and a continuous supply is guaranteed, with external competition curtailed by the formation of a monopoly.

Government-Sanctioned Monopolies

Two examples of government-sanctioned monopolies in the United States are the American Telephone and Telegraph Corporation (AT&T) and the United States Postal Service. Prior to its mandated break up into six subsidiary corporations in 1982, AT&T was the sole supplier of U.S. telecommunications. Since 1970, the United States Postal Service has been the sole courier of standardized mail across the U.S.

Government-sanctioned monopolies need not always be for reasons of economic efficiency or consumer price protection, however. Nine of the 52 states of the union operate legal monopolies of hard-liquor sales.

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