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The most extensive and common monopoly markets operate with exclusive licensure, anti-competitive subsidization and/or tariff protection. These include public utilities and TV rights. Until 20th century deregulation, the markets for oil, trucking, postal delivery and air travel operated with monopoly privilege.

The Making of a Monopoly

Monopoly, as a theoretical economic construct, prevails when barriers to entry exist because one firm can operate at a lower marginal cost than its competitors. Once competitors have been stamped out, the monopoly firm can raise prices, restrict output and hurt consumers.

Milton Friedman studied natural monopolies and only found two possible examples that might have persisted without special government privilege: the New York Stock Exchange from the 1870s until 1934, and the De Beers diamond mining company. Even those, he said, were questionable examples. De Beers' share of the diamond market later fell from 90% in 1980 to just 33% in 2013 through international competition.

Instead, monopolies can only hold lower marginal costs through government protection. Marginal costs for monopolies can be reduced through subsidies, or costly restrictions might be imposed on possible competitors to raise their marginal costs. Competition can be explicitly restricted through licenses and intellectual property.

Examples of Monopoly

No U.S. markets are more monopolistic than utilities. Providers of water, natural gas, telecommunications, and electricity are usually granted exclusive rights to service municipalities through local governments. Mexican tycoon Carlos Slim built his fortune on a series of monopolistic companies, most notably his telecommunications firm America Movil. (For related reading, see: How Carlos Slim Built His Fortune).

Harold Demsetz pointed out that these markets had no such monopoly tendencies before exclusive rights were granted; up to 45 different electric light companies operated in Chicago in 1907, for example.

Trucking and railroad companies became monopolistic after the establishment of the Interstate Commerce Commission, which imposed heavy costs on start-up transportation competition.

Myth in Steel and Oil

Andrew Carnegie's Steel Company and John Rockefeller's Standard Oil are colloquially held as examples of 19th-century monopolies. However, later research by John McGee and Thomas DiLorenzo suggests that these great entrepreneurs "did not use predatory price cutting to acquire or keep monopoly power." In fact, prices for steel and oil fell, and output rose dramatically in both cases.

 

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